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Energy & Economics
Graph Falling Down in Front Of Germany Flag. Crisis Concept

Why has the German economy underperformed and fallen behind?

by World & New World Journal Policy Team

I. Introduction As Figure 1 shows, Germany’s share of world GDP has declined from 6.99% in 1980 to 2.89% in 2025. Germany, which had been considered to be Europe’s economic powerhouse in previous decades, became the worst-performing major economy in 2023 with a 0.9% contraction, followed by another 0.5% contraction in 2024, leading to a recession. Several economists and business figures expressed concerns that Germany’s economic downturn could cause the country to reclaim its reputation as the “sick man of Europe” from the 1990s. [1] Economists argue that the German economy was in a permanent crisis mode, while the Handelsblatt Research Institute declared that it was in its “greatest crisis in post-war history” after projecting a third consecutive year of recession in 2025. [2]  Figure 1: Germany’s share of world GDP (based on PPP)  As Figure 2 shows, GDP in the United Kingdom in Q3 2025 was 5.2% above its pre-pandemic level of Q4 2019. This compares with Euro-zone GDP being 6.5% higher, with GDP in Germany up by 0.1% (the lowest among G7 economies). The United States has the highest GDP growth among G7 economies over this period at 13.3% (as of Q2 2025).  Figure 2: G7 nations’ GDP growth (source: OECD) With this information in background, this paper explores why the German economy has underperformed and fallen behind. This paper first describes the current economic situation of Germany and explains why the German economy has failed. II. Current economic situations of Germany The German economy has been sluggish. As Figure 3 shows, the average GDP growth rate in Germany during the 2013-2023 period was only 1.1%. And Germany experienced a 0.9% contraction in 2023 and a 0.5% contraction in 2024.  Figure 3: Average GDP growth rate in Germany, 2013-2024 In addition, as Figure 4 shows, the unemployment rate in Germany has recently increased following the Ukraine war. The unemployment rate dropped from 6.2% in January 2016 to 5% in January 2020, but then it rose following the Ukraine war in 2022. Unemployment rate increased from 5% in March 2022 to 5.6% in March 2023 and 6.3 % in December 2025.  Figure 4: Unemployment rate in Germany, 2016-2025 (source: Bundesagentur für Arbeit) Rising energy prices have been a main factor causing serious problems for the German economy. As Figure 5 shows, gasoline price in Germany has increased following the Ukraine war. Gasoline price in Germany averaged 1.73 USD/Liter from 1995 until 2025, but it reached an all-time high of 2.36 USD/Liter in May 2022. Gasoline price declined to 2.05 USD/Liter in December 2025, but it is still higher compared to the previous decade.  Figure 5: Gasoline price in Germany (source: Trading Economics) Moreover, fiscal imbalance has been a big problem for Germany. As Figure 6 shows, consolidated fiscal balance in Germany recorded a huge deficit in the 2020s. The deficit recorded $49,542 billion in January 2023 and $46,923 billion in September 2025, compared with an average of $13,425 billion from March 1991 to September 2025. Figure 6: Germany’s consolidated fiscal balance (source: CEIC Data) As a result, as Figure 7 shows, the German government’s debt as a % of GDP significantly increased in the 2020s. The German government’s debt reached an all-time high of 81% in December 2010 and then declined until 2019, but it started to increase from 2020. The German government’s debt as a % of GDP increased to 65.2% in October 2022.  Figure 7: Government debt in Germany: % of GDP (source: CEIC Data) Investment is a key to economic growth in every country. As Figure 8 shows, overall private investment in Germany has declined in the 2020s, particularly during the period of 2022-2024 after the Ukraine War. In addition, as Figure 9 shows, total government net investment in Germany has declined in the 2020s.  Figure 8: Private investment in Germany, 2010-2024 (Source: ECB, Eurostat, Destatis and European Commission calculations)  Figure 9: Government net investment in Germany, 2010-2024 (Source: ECB, Eurostat, Destatis and European Commission calculations) Reflecting Germany’s recent sluggish economy, as Figure 10 shows, the German manufacturing industry’s business expectation has been negative over the period of 2022-2025 after the Ukraine war.  Figure 10: German manufacturing industry’s business expectation III. Causes of the failure of German economy Why has the German economy failed? Germany’s economic decline can be attributed to multiple factors. The first factor is the energy crisis or energy policy in Germany. Economists cited Germany’s overreliance on cheap Russian gas as one of many primary factors for Germany’s economic stagnation. Prior to Russia’s invasion of Ukraine, as Figure 11 shows, 56% of Russia’s gas exports went to Germany. This caused German industry and the broader economy to become dependent on cheap Russian energy.  Figure 11: Russia’s gas exports in 2021 Germany’s phasing out of its established network of nuclear power, a process initiated and led by the Greens and ultimately enforced by the second Merkel government, increased Germany’s dependency on Russian energy. The German government’s decision to phase out its nuclear power was influenced by the high-profile Fukushima nuclear accident in 2011. Until March 2011, Germany obtained one-quarter of its electricity from nuclear energy, using 17 reactors. The following gap after phasing out of its established network of nuclear power was primarily filled by Russian natural gas, inadvertently increasing dependency on Russian energy. Despite early leadership in renewable energy adoption, Germany’s transition has been hampered by antiquated bureaucratic obstacles, complicated and slow processes for approving projects for renewable energy, and local resistance to infrastructure projects, each discouraging further investment in renewable sectors. As of 2024, renewable sources accounted for just over 52% of the country’s electricity supply, insufficient to meet industrial demands. Germany’s dependency on Russian gas became a vulnerability following the Ukraine War in 2022. The abrupt disruption of Russian energy forced Germany to rapidly diversify its energy sources, leading to a 32.6% reduction in gas imports by 2023. The subsequent sanctions against Russia and supply disruptions led to a 32% increase in Germany’s energy prices, contributing to economic instability and decline. As Figure 12 shows, energy consumer price in Germany skyrocketed in the 2020s following the Ukraine War. Energy consumer price in Germany increased 32% in September 2022 compared to the previous year.  Figure 12: Energy consumer price in Germany (source: OECD) Although energy consumer price in Germany significantly dropped in 2024 and has stabilized afterwards, the damage to industrial competitiveness has been lasting. Energy-intensive industries such as chemicals and metals have shrunk, forcing businesses to either cut production or relocate abroad, thereby contributing to economic decline. The second factor related to the sluggish economy of Germany is the under-development of the tech industry in Germany. Some experts argued that Germany’s economic troubles were partly due to its slow adaptation to technological advancements and shifting to low-productivity sectors, contributing to declining productivity. [3] This issue is about Germany’s insufficient investment in new technologies (computers, artificial intelligence (AI), software, etc.) and the low level of spending on research and development (R&D), compared to other advanced countries such as the US. When we compare OECD countries, we see that these two components have a strong influence on productivity differences between countries. The econometric estimate leads to the following effects: a 1-point increase in the rate of investment in new technologies leads to a 0.8 point increase per year in productivity gains. In a similar way, a 1 point increase in GDP for R&D expenditure leads to a 0.9 point increase per year in productivity gains. [4] As Figure 13 shows, gross domestic spending on R&D as a % of GDP in Germany in 2023 was higher than in many EU countries, but lower than in its Western rivals such as the US, Israel, Japan, Taiwan, South Korea, Sweden, and Switzerland.  Figure 13: Gross domestic spending on R&D as a % of GDP, 2023 Moreover, weak investment in public infrastructure and digitalization has further weakened Germany’s IT sectors. As Figure 14 shows, Germany has long underinvested in public infrastructure, ranking near the bottom among advanced economies in public investment levels.  Figure 14: gross public investment in OECD countries, 2018-2022 (source: IMF) As a result, as Figure 15 shows, there are no German tech firms among the global top 10 most valuable unicorns. The US and China lead the category of global tech unicorns.  Figure 15: Global top 10 Unicorns (source: https://www.hurun.co.uk/hurun-global-unicorn-index-2025#:~:text=In%20contrast%20to%20the%20UK's,the%20US%20and%20China%2C%20including The third factor related to the sluggish economy of Germany is the demographics. As Figure 16 shows, the working-age population in Germany has declined, while old people over 65 have significantly increased.  Figure 16: Age group in Germany (source: UN, World Population Prospects & Financial Times) The IMF posited that the fundamental structural challenges for Germany are accelerating population aging. The country’s working-age population, which had been declining over the three decades, was projected to decline sharply as baby boomers retired. As Figure 17 shows, Germany’s working-age population growth is the lowest among G7 countries. This demographic shift in Germany is expected to decrease GDP per capita, further hinder productivity growth, and cause increased demand for healthcare, potentially forcing workers to go into healthcare away from other sectors.  Figure 17: Working-age population growth, G7 economies (source: IMF) Under this circumstance, shorter working hours increasingly constrain Germany’s labor supply, thereby reducing economic growth. As Figure 18 shows, employees in Germany work shorter hours on average than in any other OECD country.  Figure 18: Employees in Germany work shorter hours on average than in any other OECD country Another issue related to the demographics is the size of the welfare state in Germany. As Figure 19 shows, Germany’s public social spending has expanded and is now at record level. As Figure 20 shows, Germany spent around 30% of its GDP on welfare and social benefits in 2024, placing it among the largest welfare states in Europe, as well as in the world.  Figure 19: German social welfare spending is at record levels, excluding the Covid-19 pandemic (source: OECD, Financial Times)  Figure 20: Welfare and social spending as a % of GDP in 2024 (Source: Eurostat (2024) Gwartney, Holcombe and Lawson (1998) showed empirically that as the size of general government spending has almost doubled on average in OECD countries from 1960 to 1996, their real GDP growth rates have dropped by almost two thirds on average (see Figure 21). According to them, as public social spending goes up, GDP growth goes down.  Figure 21: High government spending reduces growth Moreover, any increase in welfare costs automatically leads to an increase in non-wage labor costs for employers. Under German law, employers are obliged to cover half of their employees’ insurance contributions. Since the end of the Covid-19 pandemic, as Figure 22 shows, non-wage labor costs have risen at a faster rate than total wages, eating into companies’ profits and reducing the room for wage increases, thereby lowering economic growth.  Figure 22: Costs other than wages have started to make up a greater share of employers’ labor spending (source: Bundesbank & Financial Times) The fourth factor related to the sluggish economy of Germany is exports. Exports have been a driving force for Germany for a long time, but the year-on-year (YoY) exports growth rate indicates a decline over the 2023-25 period after the Ukraine War, as Figure 23 shows.  Figure 23: Year-on-year (YoY) exports growth rate in Germany (source: MacroMicro) In addition, German export performance against global competitors has not been so good, as Figure 24 shows. It was so bad in the 2020s.  Figure 24: Germany’s export performance against global competitors (source: Deutsche Bank Research & OECD) IV. Conclusion This paper showed that the German economy has been in big trouble with sluggish economic growth. This paper explained that the failure of the German economy can be attributed to an energy crisis, as well as underdevelopment of tech industry, a shrinking working-age population and shortest working hours of employees, a large size of welfare state, and sluggish exports. References [1] Germany, which had been considered to be Europe’s economic powerhouse in prior decades, became the worst-performing global major economy in 2023 with a 0.9% contraction, followed by further 0.5% contraction in 2024 leading to recession. [2] Partington, Richard (15 January 2024). "Germany on track for two-year recession as economy shrinks in 2023". The Guardian. [3] Fletcher, Kevin; Kemp, Harri; Sher, Galen (27 March 2024). "Germany's Real Challenges are Aging, Underinvestment, and Too Much Red Tape". International Monetary Fund. [4] https://www.polytechnique-insights.com/en/columns/economy/economy-why-europe-is-falling-behind-the-usa/

Defense & Security
Keir Starmer (Prime Minister, United Kingdom of Great Britiain and Northern Ireland) about

Prime Minister Keir Starmer gave a speech during the Munich Security Conference

by Keir Starmer

Prime Minister Keir Starmer gave a speech during the Munich Security Conference For many years, for most people in the United Kingdom, war has been remote. Something that concerns us deeply, but which happens far off. But now we feel the solidity of peace, the very ground of peace now softening under our feet. It is the job of leaders to be ahead of these seismic shifts. Yet that is against the grain of history. Time and again, leaders have looked the other way, only re-arming when disaster is upon them. This time, it must be different. Because all of the warning signs are there. Russia has proved its appetite for aggression, bringing terrible suffering to the Ukrainian people. Its hyper-threats extend across our continent, not just threatening our security, but tearing at our social order. Collaborating with populists to undermine our values. Using disinformation to sow division. Using cyber-attacks and sabotage to disrupt our lives and deepening the cost-of-living crisis. It is true that Russia has made a huge strategic blunder in Ukraine, and the Russian casualties number well over a million. But even as the war goes on, Russia is re-arming, reconstituting their armed forces, an industrial base. NATO has warned that Russia could be ready to use military force against the Alliance by the end of this decade. In the event of a peace deal in Ukraine, which we are all working hard to achieve, Russia’s re-armament would only accelerate. The wider danger to Europe would not end there. It would increase. So, we must answer this threat in full. At the outset, it is important to be prepared. We do not seek conflict. Our objective is lasting peace, a return to strategic stability, and the rule of law. And in the face of these threats, there is only one viable option. Now, to break the convention of a house of speeches, we are not at a crossroads. The road ahead is straight and it is clear. We must build our hard power, because that is the currency of the age. We must be able to deter aggression. And yes, if necessary, we must be ready to fight. To do whatever it takes to protect our people, our values, and our way of life. And as Europe, we must stand on our own two feet. And that means being bold. It means putting away petty politics and short-term concerns. It means acting together to build a stronger Europe and a more European NATO, underpinned by deeper links between the UK and the EU, across defence, industry, tech, politics, and the wider economy. Because these are the foundations on which our security and prosperity will rest. This is how we will build a better future for our continent. True to the vibrant, free, diverse societies that we represent, showing that people who look different to each other can live peacefully together. But this isn’t against the tenor of our times. Rather, it’s what makes us strong, as we’re prepared to defend it with everything that we have. And we are not the Britain of the Brexit years anymore. Because we know that in a dangerous world, we would not take control by turning in. We would surrender. And I won’t let that happen. That’s why I devote time as Prime Minister to Britain’s leadership on the world stage. And that’s why I’m here today. Because I am clear, there is no British security without Europe, and no European security without Britain. That is the lesson of history and is today’s reality as well. So together we must rise to this moment. We must spend more, deliver more, and coordinate more. And crucially, we must do this with the United States. The US remains an indispensable power. Its contribution to European security over 80 years is unparalleled. And so is our gratitude. At the same time, we recognise that things are changing. The US National Security Strategy spells out that Europe must take primary responsibility for its own defence. That is the new law. Now, there have been a series of thoughtful interventions about what this means, including the argument that we’re at a moment of rupture. Now, I would agree that the world has changed fundamentally, and that we must find new ways to uphold our values and the rule of law. But in responding to that, we must not disregard everything that has sustained us for the last 80 years. That could be a moment of destruction. And instead, I believe, we must make this as a moment of creation. Instead of a moment of rupture, we must make it one of radical renewal. So, rather than pretending that we can simply replace all US capabilities, we should focus on diversifying and decreasing some dependencies. We should deliver generational investment that moves us from over-dependence to interdependence. I’m talking about a vision of European security and greater European autonomy. It does not herald US withdrawal, but answers the call for more burden-sharing in Europe and remake the ties that have served us so well. Because we know the value of our own power. The nature of our power is at the core of human decision. It achieved something that leaders have been trying to do for centuries. From Westphalia to the Congress of Vienna to Versailles. After centuries of conflict, the founders of NATO finally united our continents in peace and security. Our militaries, that once faced each other on the battlefield, now stand side-by-side, pledged to each other’s defence. It is a shield over our heads every single day. And whilst some on the extremes of our politics chip away at this alliance, we defend it. I am proud that my party fought for NATO’s creation. While our then Foreign Secretary Ernest Bevin called it a spiritual union of the West. And we’ve shown our fidelity to that idea, asserting each other’s sovereignty, as we did on Greenland. And crucially, coming to each other’s aid under Article 5. We fought together in Afghanistan, at terrible cost to many in my country and across many allied countries. And so, I say to all NATO members, our commitment to Article 5 is as profound now as ever. And be in no doubt, if called on, the UK would come to your aid today. Instead, we must move forward together to create a more European NATO. As I see it, Europe is a sleeping giant. Our economies dwarf Russia more than ten times over. We have huge defence capabilities, yet too often this adds up to less than the sum of its parts. Fragmented industrial planning and procurement have led to gaps in some areas, and massive duplication in others. Europe has over 20 types of frigate, and 10 types of fighter jet. We have over 10 types of main battle tanks, whilst the US has one. It’s wildly inefficient, and it harms our collective security. The US security umbrella has allowed these bad habits to develop. But now we must break them. And we have shown that we can coordinate in great effect, as was just set out. Supporting Ukraine in a way that Putin never really imagined. Creating the Coalition of the Willing, which now covers almost all of Europe, as well as Canada and our friends in the Asia-Pacific. And going further in our support, with the UK announcing over £500 million this week for more air defence for the Ukrainian people. To meet the wider threat, it is clear that we are going to have to spend more faster. And we have shown our collective intent in this regard as well. With the historic agreement to increase spending to 5% on security and defence. And we are prepared to explore innovative solutions. So, we are stepping up work with like-minded allies on options for a collective approach to defence financing, to help accelerate this vital investment. And as we increase spending, we must use it to its full potential. We must come together to integrate our capabilities on spending and procurement and build a joint European defence industry. I welcome the steps that we have taken so far, which could allow us to participate in the £90 billion Euro loan to Ukraine. I hope we can work together like this going forward. Because, look, the logic of defence is solidarity and collective effort, not market access. In a crisis, our citizens expect us to be ready. So, we need to deliver a step change in collaboration. And I am proud of the work we are already doing together. Delivering cutting-edge drones with Ukraine. Developing next-generation long-range missiles with Germany, Italy and France. Working with our JEF allies to protect our northern flank. Doubling our deployment of British commandos in the Arctic. Taking control of NATO’s Atlantic and Northern Command in Norfolk, Virginia. And transforming our Royal Navy by striking the biggest warship deal in British history with Norway. We are building a fleet of warships to hunt Russian submarines and protect undersea infrastructure. We want to replicate this level of collaboration with other allies across the High North and the Baltics. And I can announce today that the UK will deploy our Carrier Strike Group to the North Atlantic and the High North this year led by HMS Prince of Wales, operating alongside the US, Canada and other NATO allies in a powerful show of our commitment to Euro-Atlantic security. That is also why we are enhancing our nuclear cooperation with France. For decades the UK has been the only nuclear power in Europe to commit its deterrent to protect all NATO members. But now any adversary must know that in a crisis they could be confronted by our combined strength. It shows beyond doubt how vital it is that we work together. So, we must also look at what more we can do with the EU. We must go beyond the historic steps that we took at last year’s UK-EU summit to build the formidable productive power and innovative strength that we need. British companies already account for over a quarter of the continent’s defence industrial base. They are a job-creating, community-building machine employing around 239,000 people across the UK, including in Wales, where this month we’re launching the first of five regional defence-grade deals. We want to bring our leadership in defence, tech and AI together with Europe to multiply our strengths and build a shared industrial base across our continent which could turbocharge our defence production. That requires leadership. To drive greater coherence and coordination across Europe. That is what we’re doing with Germany and France in the E3, working closely with EU partners, particularly Italy and Poland as well as with Norway, Canada and Turkey. So, my message today is the United Kingdom is ready. We see the imperative. We see the urgency. We want to work together to lead a generational shift in defence industrial cooperation. Now this includes looking again at closer economic alignment. We are already aligned with the single market in some areas to drive down the prices of food and energy. We are trusted partners. And as the Chancellor of the Exchequer said this week, deeper economic integration is in all of our interests. So, we must look at where we can move closer to the single market in other sectors as well where that would work for both sides. The prize here is greater security. Stronger growth for the United Kingdom and the EU, which will fuel increased defence spending and the chance to place the UK at the centre of a wave of European industrial renewal. I understand the politics very well. It will mean trade-offs. But the status quo is not fit for purpose. And to me there is no question where the national interest lies. I will always fight for what’s best for my country. I started today talking about avoiding mistakes of the past like delaying action or fragmenting our efforts. But there is something else. In the 1930s, leaders were too slow to level with the public about the fundamental shift in mindset that was required. So, we must work harder today to build consent for the decisions we must take to keep us safe. Because if we don’t, the peddlers of easy answers are ready on the extremes of left and right and they will offer their solutions instead. It’s striking that the different ends of the spectrum share so much. Soft on Russia. Weak on NATO. If not outright opposed. And determined to sacrifice the relationship we need on the altar of their ideology. The future they offer is one of division and then capitulation. The lamps would go out across Europe once again. But we will not let that happen. If we believe in our values, in democracy, liberty and the rule of law. This is the moment to stand up and to fight for them. That is why we must work together. And show that by taking responsibility for our own security, we will help our people look forward. Not with fear, but with determination. And with hope. Thank you very much. Contenido bajo licencia Open Governement Licence v3.0 [https://www.nationalarchives.gov.uk/doc/open-government-licence/version/3/] UK Prime Minister’s Office. GOV.UK. Web.

Defense & Security
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Will NATO even survive?

by Krzysztof Sliwinski

Abstract This paper analyses the current challenges facing NATO and questions its future viability amid shifting geopolitical dynamics. It highlights the evolving U.S. stance, marked by a 2025 National Security Strategy that prioritises self-reliance for European allies and a reduced American military role in Europe, reflecting a broader "America First" approach. Russia's persistent opposition to NATO's eastward expansion, particularly regarding Ukraine, fuels ongoing conflict and threatens regional stability. Germany's emerging leadership role in European security is explored, showcasing its increased defence commitments and strategic cultural shift from restraint to readiness. Turkey’s crucial geopolitical position and military capabilities underscore its significance within NATO despite recent tensions. The paper also discusses the Greenland dispute as a symbol of intra-Alliance tensions and as a challenge to collective defence principles under Article 5. Ultimately, the Ukraine war serves as a critical test for NATO, raising doubts about the Alliance’s coherence and effectiveness amid internal divisions and external threats. Key Words: NATO, Russia, US, Europe, Security Introduction Allegedly, Lord Ismay (Hastings Lionel Ismay), the first Secretary of the North Atlantic Treaty Organisation (NATO), famously claimed that NATO was set up for three major reasons: to keep the Americans in, to keep the Russians out (he meant the USSR) and to keep the Germans down.[1] Historians and international security experts generally agree that NATO has been a fundamental part of European security architecture, helping maintain peace on the European continent during the Cold War amid the great powers’ rivalry. Not only did the American presence on the European continent deter a possible Soviet invasion, but it also served as a pacifier regarding European military and political ambitions, especially German. As of today, "the Alliance" (as Nato is often referred to) seems to be edging towards the end of its coherence due to many internal and external reasons. This short paper will explore some of them, albeit the topic naturally requires a much longer and deeper approach. The Americans: still in? On December 9, 2025, Republican Congressman Thomas Massie of Kentucky introduced H.R. 6508, the NATO Act, which calls for the United States to withdraw from NATO. In his statement, following (consciously or not Lord Ismay) Massie states: “NATO is a Cold War relic. We should withdraw from NATO and use that money to defend our own country, not socialist countries. NATO was created to counter the Soviet Union, which collapsed over thirty years ago. Since then, U.S. participation has cost taxpayers trillions of dollars and continues to risk U.S. involvement in foreign wars. Our Constitution did not authorise permanent foreign entanglements, something our Founding Fathers explicitly warned us against. America should not be the world’s security blanket — especially when wealthy countries refuse to pay for their own defense.”[2] This is but a small ripple in a much bigger pool of water that hosts the U.S. concerns regarding their involvement in the European Security architecture. To cut a long story short, there seems to be a formidable force in U.S. politics advocating a "refocus" of US foreign policy doctrine and the consequent foreign policy and security strategies. Not surprisingly, therefore, the U.S. President has recently unveiled the new National Security Strategy of the United States of America. The 2025 National Security Strategy (NSS) released by the Trump administration indicates a shift away from the U.S. focus on Europe in foreign and security policy, emphasising greater self-reliance for European allies and prioritising other regions.[3] The NSS ranks global regions by priority, placing the Western Hemisphere first (elevated from fifth in the 2017 NSS), Asia second, and Europe third—a demotion from its previous second-place ranking. This reorientation aligns with an "America First" approach that emphasises burden-sharing, non-interventionism, and a narrower definition of U.S. national interests, thereby avoiding overextension in regions such as Europe. Key elements signalling a less focused approach to Europe include, among others, the encouragement of European self-defence. The strategy calls for Europe to assume primary responsibility for its own security as sovereign nations. It urges ending NATO's expansion and requires allies to meet a new 5% of GDP defence spending commitment (dubbed the "Hague Commitment"), far above the current 2% target, to ensure fair burden-sharing. Secondly, the NSS outlines a limited U.S. role in Europe. The U.S. involvement is framed as diplomatic support for stability (e.g. negotiating an end to the Ukraine war and fostering relations with Russia for reconstruction and strategic stability) rather than sustained military commitments. The document criticises Europe's economic decline, migration issues, and EU "transnationalism" that undermines sovereignty, but positions the U.S. as a helper only for aligned partners willing to open markets and combat hostile practices such as mercantilism. As far as the Western Hemisphere is concerned, the NSS asserts U.S. preeminence through a "Trump Corollary" to the Monroe Doctrine, focusing on migration control, supply chains, and denying adversarial influence through active military and economic measures (Central and South America and the Caribbean). This marks a departure from past NSS documents, which often centred on Europe due to NATO commitments and threats like Russia, toward a more transactional and restrained U.S. posture in the region.[4] With regards to that last point, the very latest National Defence Strategy of the U.S. confirms the direction away from Europe.[5] The strategy prioritises Europe taking primary responsibility for its own conventional defence, with critical but more limited support from the United States. This includes supporting Ukraine’s defence as primarily a European responsibility. Moreover, according to the document, Russia remains a persistent but manageable threat to NATO's eastern members. The Russians: already in? The ongoing war in Ukraine, which has lasted for 4 years now, has allowed the Russian army to make formidable advances in the field. Russian experts and military advisors are pushing for control of Odessa (I write about it here). It appears probable at this stage that the Russian Federation will want to control as much territory of Ukraine as possible and that the lack of effective diplomacy means that the outcome of the war will be settled on the battlefield rather than in the comfort of negotiation chambers. Regardless of the mainstream narratives constantly pushed by CNN or BBC, the Russians have not really changed their fundamental demand - that Ukraine should not be permitted to become a NATO member. Western societies and their political elites can, of course, feel moral outrage when confronted with such demands. The facts are, however, painfully simple. After the end of the Cold War, the reunification of Germany was agreed to and accepted by the then-Soviet Union, on the condition that NATO would not expand eastward. (I write about here). NATO did expand westward multiple times, however. From the Kremlin's perspective, Ukraine's possible membership in NATO is the last red line Russia cannot allow to be crossed. Put simply, Ukraine's geography makes it a strategic asset to NATO. Let us also remember that countries such as Turkey, Poland, all three Baltic states, and, recently, even Finland are already NATO members.[6] Importantly, Russian security and military experts see this as a fundamental threat to Moscow and its European environment. (Russia, after all, is also a European country). (The pivotal moment came at the April Bucharest Summit, where NATO leaders — despite opposition from France and Germany — declared that Ukraine (and Georgia) "will become members of NATO." This was not an immediate invitation but a promise of future membership once conditions were met, with the U.S. lobbying heavily for a Membership Action Plan (MAP). Ukraine had formally requested a MAP in January 2008.)[7] Source: https://www.nationsonline.org/oneworld/map/central-europe-map.htm According to the European Parliament, as early as back in 2014, Moscow identified several challenges as threats to its national security, with a particular focus on the West. First, it is the opposition to Russia's independent foreign policy. Russia perceives that its independent foreign and domestic policies are met with resistance from the United States and its allies, who seek to maintain their domination in world affairs and to "contain" Russia through political, economic, military, and informational pressure.[8] Second, Russia had always viewed the enlargement of NATO, the location of its military infrastructure close to Russian borders, NATO's "offensive capabilities," and the trend towards NATO acquiring global functions as direct challenges to its security Third, Russia was concerned about U.S. initiatives like the global antimissile system, Global Strike capabilities, and the militarisation of space, which it views as efforts to undermine its strategic deterrent. Fourth, Russia resented Western criticism of its policies in the post-Soviet countries, often described by Moscow as neo-imperialistic, and perceives NATO and the EU's enlargement and development of cooperative ties in the shared neighbourhood as expanding their spheres of influence at Russia's expense. Fifth, Moscow condemned efforts to provoke regime changes through means such as "colour revolutions," as it views these as attempts to destabilise its internal situation, supported at times by military force. This includes references to events in Georgia (2003), Ukraine (2004 and 2014 "Revolution of Dignity"), Kyrgyzstan (2005), and the Arab Spring (2010-2012). Sixth, the Kremlin perceived an increasing competition with the West, including rival systems of values and societal models, and it rejects the normative dimension of the EU's external action, which it sees as an attempt to impose its norms and values on Russia. Next, Russia faced economic sanctions, financial, trade, investment, and technological policies used by the West as instruments to address geopolitical problems and contain alternative centres of power, such as Russia. Finally, across its strategic documents, Russia consistently emphasised the West (including the EU) as its main challenger to its great-power ambitions and security. The latest National Security Strategy of the Russian Federation as approved by President Putin in July 2021 (still before the beginning of the War in Ukraine), NATO and Western European countries are perceived by Russia as sources of pressure and threats.[9] The Strategy states that attempts to exert pressure on Russia, its allies, and partners, including building up NATO military infrastructure near Russian borders and intensifying intelligence activities, contribute to increasing military dangers and threats to Russia. Moreover, there is mention of Western countries' desire to maintain hegemony, which is associated with the crisis of economic development models, rising disparities and social inequality, attempts to limit the role of states, and the exacerbation of political problems and inter-state contradictions. The document also notes that some states view Russia as a threat or even a military adversary, and that there are efforts to instigate disintegration processes within the Commonwealth of Independent States to undermine Russia's ties with its traditional allies. Additionally, unfriendly actions by foreign countries, including Western states, are seen as attempts to exploit Russia's socio-economic problems to undermine internal unity and radicalise protest movements. Furthermore, information campaigns by foreign countries seek to form a hostile image of Russia, restrict the use of the Russian language, ban Russian media activities, and impose sanctions on Russian athletes. The document describes these as unjustified accusations and discrimination against Russian citizens and compatriots abroad. Overall, NATO and Western European countries are portrayed as pursuing policies aimed at containing Russia, undermining its sovereignty, and interfering in its internal affairs, which Russia views as threats to its national security and statehood. Now, as mentioned here, it seems that the outcome of the War in Ukraine is most likely to be decided on the battlefield and that the Russians will keep expanding their territory control, possibly even including Odessa, and that ultimately, they will want to keep as much Ukrainian territory under their direct or indirect control as possible. It is very unlikely at this stage that Ukraine will ever regain its territorial integrity (compared to pre-2014 status and Crimean operation). The Germans: up or what? In one of the recent publications (available here), I claimed that German leadership has, for some time now, promoted the idea of "special responsibility" for Europe and European security. To briefly recollect: "The former Chancellor, Olaf Scholz, at Charles University in Prague on 24 August 2022, recently elaborated on German leadership’s vision regarding the European defence efforts. His presentation paints a broad picture of the EU's future at the beginning of the 3rd decade of the 21st century, against the backdrop of the Russian invasion of Ukraine. Among the four “revolutionary” ideas mentioned by Scholz, two stand out in particular. Firstly, given the potential enlargement of the European Union to up to 35 states, a transition to majority voting in the Common Foreign and Security Policy is urged. Secondly, regarding European sovereignty, the former German Chancellor asserts that Europeans are becoming more autonomous across all fields, assuming greater responsibility for their security, working more closely together, and standing even more united to defend their values and interests worldwide. In practical terms, Scholz indicates the need for one command and control structure for European defence efforts.[10] Arguably, Germany's self-proclaimed special role stems from a re-evaluation of its strategic culture, moving from "restraint to readiness."[11] Post-reunification in 1990, Germany was reluctant to lead on security issues, preferring multilateralism through the EU and NATO while avoiding military assertiveness due to its Nazi past and a culture associating power with guilt rather than responsibility. However, events like the 2014 Crimea annexation and the 2022 Ukraine invasion forced a "profound transformation," with leaders arguing that Germany's previous "strategic ambiguity" is no longer viable in a world of revisionist threats.[12] Former Chancellor Scholz described this as a "mandate to act," not just a description of change, emphasising Germany's obligation to secure peace and foster EU solidarity. [13] Chancellor Merz has built on this, asserting that "everything else is subordinate to external security" and that Europe expects German leadership after years of underperformance.[14] German leaders generally justify this role through a combination of geopolitical, economic, and normative arguments, often tied to specific policy actions like defence spending hikes and institutional reforms. First, geopolitical necessity and threat response. Germany portrays itself as uniquely positioned to confront existential threats like Russian aggression, given its central location in Europe and proximity to conflict zones. Scholz argued that Germany must act as the "guarantor of European security that our allies expect us to be," defending the international order against autocracies and serving as a bridge-builder in the EU. [15] Merz has emphasised the need to fill the void left by U.S. disinterest, stating that Germany faces a "dual shock" from Russian imperialism and American retrenchment, necessitating leadership to maintain transatlantic security. [16] This includes strengthening NATO's deterrence, with Germany committing to nuclear sharing and viewing alliance solidarity as part of its "reason of state."[17] Second, economic power and resource capacity. As Europe's largest economy, Germany justifies its role by leveraging its financial clout for defence investments, aiming to reach 3 - 3.5% of GDP by 2029 — surpassing NATO's 2% target and outpacing France and the UK.[18] Apparently, recently, Merz has relaxed the constitutional debt brake to fund €500 billion in infrastructure and defence, arguing this enables Germany to lead systemic renewal in European security without overburdening allies. [19] Leaders like Scholz and Merz frame this as a responsibility commensurate with Germany's potential, turning economic strength into security leadership rather than mere fiscal discipline.[20] Third, there is the question of perceived historical responsibility and the evolution of strategic culture. Drawing on Germany's past, its contemporary political leaders argue for a shift from "fence-sitting" to "pace-setting," redefining power as responsibility rather than aggression.[21] This includes overcoming "outdated beliefs" about post-Cold War peace and embracing a "geopolitical, security-driven master narrative." Scholz invoked Germany's duty to foster multilateral solutions and reject isolationism, while Merz highlights the need to reshape public perceptions of military force as a tool for stability. This narrative aligns with broader values such as defending democracy, human rights, and the rules-based order, positioning Germany as a defender of European unity.[22] What of Turkey? Turkey has been a member of NATO since 1952, joining primarily to counter Soviet threats during the Cold War, and it remains a pivotal ally due to its unique geopolitical position, military strength, and contributions to alliance objectives. As far as the country's location, Turkey straddles Europe and Asia, serving as NATO's southeastern anchor and controlling the Bosporus and Dardanelles straits, which connect the Black Sea to the Mediterranean.[23] Under the 1936 Montreux Convention, Turkey regulates naval traffic through these waterways, effectively limiting Russian (and other non-Black Sea states') military movements — a role that's become even more critical amid Russia's actions in Ukraine and increased Black Sea presence.[24] This position also borders key regions like the Middle East (Syria, Iraq, Iran), the Caucasus, and Europe, enabling NATO to project influence and address threats from multiple fronts, including countering Russian A2/AD (anti-access/area denial) strategies. In terms of military strength, Turkey boasts NATO's second-largest standing army, providing significant "military mass" for defending extended frontiers and sustaining operations where other allies might lack scale. [25] It hosts vital NATO assets, including the Incirlik Air Base (which stores around 50 U.S. nuclear weapons and supports Middle East operations), the Allied Land Command headquarters in İzmir, AWACS facilities at Konya, and a radar station in Kürecik for NATO's ballistic missile defence system. [26] These capabilities enhance the alliance's rapid response and deterrence in Europe, the Middle East, and beyond. Turkey has actively participated in numerous NATO operations, from sending 4,500 troops to the Korean War (which helped secure its NATO membership) to leading roles in Afghanistan (ISAF and Resolute Support), Iraq, the Balkans, and Mediterranean patrols like Operation Active Endeavour. More recently, it has supplied military aid to Ukraine, including Bayraktar TB2 drones that have proven effective against Russian forces, and co-led the Black Sea Grain Initiative to ensure global food security amid the ongoing war.[27] Turkey also collaborates on counterterrorism efforts against groups like ISIS and the PKK, and helps stabilise regions like the South Caucasus and Eastern Mediterranean. [28] Turkey's growing defence sector produces affordable, battle-tested equipment, such as drones and other systems, which offer NATO alternatives to more expensive Western options and enable rapid production for allies like Ukraine.[29] This industrial capacity strengthens the alliance's overall resilience and reduces dependency on single suppliers. Beyond military might, Turkey extends NATO's diplomatic reach through cultural, economic, and political ties in Africa, the Middle East, Central Asia, and Southeast Asia — areas where Western allies often face credibility gaps. It engages with challenging regimes to secure resources, energy deals, and counter Russian or Chinese influence, acting as a bridge for the alliance. However, recently Turkey's relations with NATO have faced strains — such as its purchase of Russian S-400 systems (leading to U.S. sanctions and F-35 exclusion), disputes with Greece over Cyprus and the Eastern Mediterranean, and delays in approving Finland and Sweden's memberships (resolved by 2024). It is fair to say that Turkey plays a strategically important role in European security, and its leadership effectively leverages this position against European partners. Given its geographic location and military potential, Ankara will largely influence NATO's future. Greenland Conundrum Perhaps the most intriguing in recent days is the U.S. President's claim regarding Greenland. As of January 27, 2026, tensions between the United States, Denmark, and Greenland have escalated due to renewed U.S. interest in expanding its strategic presence on the Arctic island. President Donald Trump has reportedly issued an ultimatum, pushing for greater control over parts of Greenland to bolster military bases and counter Russian influence in the region, including restrictions on drilling rights for Russia. This follows historical U.S. attempts, such as Trump's 2019 proposal to purchase Greenland outright, which was rebuffed by Denmark. Importantly, the U.S. already operates Pituffik Space Base in Greenland for early warning and missile defence, but the current demands aim to expand this amid Arctic geopolitical competition with Russia and China. Recent talks in Washington between U.S. and Danish officials have led to the formation of a working group aimed at a diplomatic resolution. However, interpretations differ: U.S. officials, including Ambassador Leavitt, frame it as facilitating a transfer or enhanced control, while Denmark emphasises disagreement and no sale. For example, a recent New York Times report indicates Denmark may grant the U.S. sovereignty over select land pockets for military bases, modelled after arrangements like those in Cyprus, to strengthen Arctic defences. [30] Greenland's Prime Minister has declared the island's sovereignty a "red line," rejecting any outright transfer.[31] Denmark has reportedly increased troop deployments to Greenland in response, insisting the territory is not for sale. To spice things up, Trump has questioned Denmark's legal claims, stirring further controversy.[32] This has arguably strained U.S. - EU relations, with Europe adopting a firmer stance against Trump's approach. As a NATO member and EU affiliate through Denmark, Greenland's status has prompted calls for allies to boost Arctic security.[33] Some European leaders worry this could force divestment from U.S. ties or heighten NATO divisions.[34] In an interesting twist, a number of European leaders issued strong rhetoric against Trump and his claims about Greenland. A Joint Statement from European Leaders declared in a collective rebuke: "Greenland belongs to its people. It is for Denmark and Greenland and them only to decide on matters concerning Denmark and Greenland," […] "Security in the Arctic must therefore be achieved collectively, in conjunction with NATO allies including the United States, by upholding the principles of the UN Charter, including sovereignty, territorial integrity and the inviolability of borders. These are universal principles, and we will not stop defending them."[35] Herein lies the fundamental conundrum: the core of the security guaranteed by NATO (at least legally speaking) is Article 5 of the Washington Treaty, the so-called Casus Foederis.[36] The article 5 states: "The Parties agree that an armed attack against one or more of them in Europe or North America shall be considered an attack against them all and consequently they agree that, if such an armed attack occurs, each of them, in exercise of the right of individual or collective self-defence recognised by Article 51 of the Charter of the United Nations, will assist the Party or Parties so attacked by taking forthwith, individually and in concert with the other Parties, such action as it deems necessary, including the use of armed force, to restore and maintain the security of the North Atlantic area." Originally conceived as a defensive military alliance, NATO was established to protect its member states from external threats, according to its founders. In the event that one member state turns against the others, the Alliance risks becoming ineffective, akin to the Warsaw Pact during the Cold War, which served as a mechanism for exerting control over weaker states. Should such a scenario occur, the survival of NATO would be in jeopardy. Historical precedent suggests that oppressive institutions inevitably collapse over time. Conclusion It is imperative to acknowledge that NATO is currently engaged, albeit indirectly, in a conflict with Russia. This situation is significant as it serves as a test of NATO's capabilities. Presently, it appears that NATO is not prevailing. Furthermore, it is reasonable to assert, as I have argued in my previous analysis (available here), that Russia is likely to achieve its primary objective: ensuring that Ukraine will not join NATO. Additionally, I expect Russia to retain its territorial acquisitions and, in some manner, exert influence over the political system that will emerge in Ukraine following the conflict. Several pertinent questions arise in this context. Will the eventual peace, following the conclusion of the conflict, be sustainable? Will it adequately consider the national interests of all parties involved? Will it offer a satisfactory compromise? Is there a probability of a resurgence of Cold War-like relations between Western European nations and Russia? In the event of a renewed Cold War scenario, will NATO continue to be perceived as an effective instrument? Furthermore, given the United States' strategic focus on the Far and Middle East, will it remain committed to participating in the European security framework through institutions such as NATO? References [1] NATO. (2026, January 15). A short history of NATO. NATO. https://www.nato.int/en/about-us/nato-history/a-short-history-of-nato [2] Rep. Massie Introduces Bill to Remove the United States from NATO. (2025, December 9). Congressman Thomas Massie. https://massie.house.gov/news/documentsingle.aspx?DocumentID=395782 [3] United States of America. (2025). National Security Strategy of the United States of America (November 2025). The White House. Washington. https://www.whitehouse.gov/wp-content/uploads/2025/12/2025-National-Security-Strategy.pdf [4] Grieger, G. (2025, December). The 2025 US National Security Strategy. European Parliamentary Research Service. https://eprs.in.ep.europa.eu [5] Department of War. (2025). National Defense Strategy [Unclassified document]. U.S. Government. https://media.defense.gov/2026/Jan/23/2003864773/-1/-1/0/2026-NATIONAL-DEFENSE-STRATEGY.PDF [6] See more at: https://www.nato.int/en/about-us/organization/nato-on-the-map [7] Pifer, S. (2024, August). Ukraine’s Long Path toward NATO. American Diplomacy. https://americandiplomacy.web.unc.edu/2024/08/ukraines-long-path-toward-nato [8] Facon, I. (2017). Russia’s national security strategy and military doctrine and their implications for the EU (Policy Department, Directorate-General for External Policies, EP/EXPO/B/SEDE/FWC/2013-08/Lot6/11 EN). European Parliament. https://op.europa.eu/en/publication-detail/-/publication/379ea707-e9dc-11e6-ad7c-01aa75ed71a1/language-en [9] President of the Russian Federation. (2021, July 2). National Security Strategy of the Russian Federation (Decree No. 400). Kremlin. [10] Sliwinski, K. (2025, June 16). Germany – the EU’s challenging leadership in challenging times. World and New World Journal. https://worldandnewworld.com/germany-eu-leadership/ [11] Harsch, M. F. (2025, December 30). From Restraint to Readiness? Germany Considers Conscription. War on the Rocks. https://warontherocks.com/2025/12/from-restraint-to-readiness-germany-considers-conscription/ [12] Kandyuk, O. (2025, October 15). THE END OF STRATEGIC AMBIGUITY? GERMANY’S NEW ROLE IN EUROPEAN SECURITY. Ukraine Analytica. https://ukraine-analytica.org/the-end-of-strategic-ambiguity-germanys-new-role-in-european-security/ [13] Bartenstein, A., & Wessels, W. (2024). German Claims for Leadership: From a Federalist to a Geopolitical Leadership Master Narrative. German Politics, 1–22. https://doi.org/10.1080/09644008.2024.2374371 [14] Cliffe, J., & Puglierin, J. (2025, May 6). From fence-sitter to pace-setter: How Merz’s Germany can lead Europe. European Council on Foreign Relations. https://ecfr.eu/article/from-fence-sitter-to-pace-setter-how-merzs-germany-can-lead-europe/ [15] Bartenstein, A., & Wessels, W. (2024). German Claims for Leadership: From a Federalist to a Geopolitical Leadership Master Narrative. German Politics, 1–22. https://doi.org/10.1080/09644008.2024.2374371 [16] Freytag von Loringhoven, A. (2025, December 16). Germany: Europe’s New Security Leader. Centre for European Policy Analysis. https://cepa.org/article/germany-europes-new-security-leader/ [17] Dempsey, J. (2023, June 22). Judy Asks: Is Germany Getting Serious About Security and Defense? Carnegie Europe. https://carnegieendowment.org/europe/strategic-europe/2023/06/judy-asks-is-germany-getting-serious-about-security-and-defense?lang=en [18] Koenig, N., & Schütte, L. (n.d.). Don’t Dodge Dilemmas Three Tests for German Leadership in European Defense. Munich Security Conference. Retrieved January 23, 2026, from https://securityconference.org/en/publications/analyses/dont-dodge-dilemmas-german-leadership-in-european-defense [19] Fuhrhop, P., & Kempin, R. (2025, December). New ambitions, old constraints: Germany’s role in shaping European defence. Berlin Perspectives, (08). Institut für Europäische Politik. https://www.iep-berlin.de [20] U.S. Department of State. (2024). Integrated Country Strategy: Germany (Approved May 25, 2022; Revised January 30, 2024). [Report]. https://placeholder-url-for-document.org [21] Harsch, M. F. (2025, December 30). From Restraint to Readiness? Germany Considers Conscription. War on the Rocks. https://warontherocks.com/2025/12/from-restraint-to-readiness-germany-considers-conscription/ [22] Weiss, S. (2016, October 1). Germany’s Security Policy. From Territorial Defense to Defending the Liberal World Order? Newpolitik. https://www.bfna.org/politics-society/germanys-security-policy-1ozhaghk6w/ [23] The United States and Türkiye: A Key NATO Ally and Critical Regional Partner. (2023, February 19). U.S. EMBASSY TÜRKİYE. https://tr.usembassy.gov/the-united-states-and-turkiye-a-key-nato-ally-and-critical-regional-partner/ [24] Ellehuus, R. (2019, December 2). Turkey and NATO: A Relationship Worth Saving. Centre for Strategic &International Studies. https://www.csis.org/analysis/turkey-and-nato-relationship-worth-saving [25] Jones, D. (2025, February 20). Turkish army could play key role in Europe’s security. Voice of America. https://www.voanews.com/a/turkish-army-could-play-key-role-in-europe-s-security/7982514.html [26] Turkish Armed Forces. (n.d.). Wikipedia. Retrieved January 24, 2026, from https://en.wikipedia.org/wiki/Turkish_Armed_Forces [27] Lucas, R. (2025, March 18). Turning Towards Turkey: Why NATO Needs to Lean into Its Relationship. RAND. https://www.rand.org/pubs/commentary/2025/03/turning-towards-turkey-why-nato-needs-to-lean-into.html [28] The United States and Türkiye: A Key NATO Ally and Critical Regional Partner. (2023, February 19). U.S. EMBASSY TÜRKİYE. https://tr.usembassy.gov/the-united-states-and-turkiye-a-key-nato-ally-and-critical-regional-partner/ [29] Lucas, R. (2025, March 18). Turning Towards Turkey: Why NATO Needs to Lean into Its Relationship. RAND. https://www.rand.org/pubs/commentary/2025/03/turning-towards-turkey-why-nato-needs-to-lean-into.html [30] Jakes, L., Tankersley, J., & Kanno-Youngs, Z. (2026, January 21). Trump Says He Has Framework for Greenland Deal as NATO Mulls Idea of U.S. Sovereignty Over Bases. The New York Times. https://www.nytimes.com/2026/01/21/us/politics/trump-greenland-threats-diplomacy-force.html?searchResultPosition=2 [31] Greenland and Denmark say sovereignty ‘red line’ after latest Trump remarks. (2026, January 22). Aljazeera. https://www.aljazeera.com/news/2026/1/22/trumps-greenland-pact-will-demand-allies-boost-arctic-security-nato-chief [32] Westfall, S. (2026, January 25). Trump tells one history of Greenland. Historians tell another. The Washington Post. https://www.washingtonpost.com/world/2026/01/25/greenland-deal-trump-history-denmark-europe/ [33] Adler, K. (2026, January 20). Confronted over Greenland, Europe is ditching its softly-softly approach to Trump. BBC. https://www.bbc.com/news/articles/c0lx7j1lrwro [34] Schoen, D. E. (2026, January 26). What Trump’s risking in the row over Greenland. The Hill. https://thehill.com/opinion/international/5703677-trump-greenland-geopolitical-impact/ [35] Joint Statement on Greenland. (2026, January 6). ÉLYSÉE. https://www.elysee.fr/en/emmanuel-macron/2026/01/06/joint-statement-on-greenland [36] See more at: https://www.nato.int/en/about-us/official-texts-and-resources/official-texts/1949/04/04/the-north-atlantic-treaty

Energy & Economics
The sharp rise in gold prices signals a strong bullish market trend.

The record gold price reflects a deeper problem than recent global instability

by Hafiz Muhammad Usman Rana

The price of gold has risen to over US$5,000 (£3,662) an ounce for the first time ever, after doubling in value over the course of a very strong 2025 for the precious metal. The usual explanation for such strong rises is that gold is considered a safe bet for investors when other options look a little shaky. High inflation for example, when cash quickly loses value, is often linked to gold price rises. Trade wars and actual wars usually have a similar effect. A common view then, is that gold performs well in moments of instability. But the research I was involved with suggests that gold prices are not simply a reaction to short-term economic events. Instead, they are a response to something deeper, reflecting an overall level of confidence in how economic systems are managed over time. During recent periods of sustained economic stability in the west, gold prices have remained largely flat. The steady growth, moderate inflation and predictable policy of the early 1990s and 2000s for example, were not good times for gold. And rather than responding to every economic peak or dip, the thing that really pushes gold prices up is instability in what’s known as “monetary credibility”. In other words, when there are doubts about whether central banks and governments will be able to maintain discipline over inflation, public debt and currency value over the coming decades. At times like this gold becomes more desirable. This helps explain why gold can continue to rise even as inflation falls, as has happened recently in several big economies, including the US and parts of Europe. And although recent weakness in the dollar and political uncertainty in the US have probably added momentum to gold’s rise, these factors amplify a deeper shift in confidence rather than explain it on their own. Our findings suggest that no single set of macroeconomic variables (like inflation, interest rates and stock prices) consistently explains gold prices across developed and emerging economies. They matter sometimes, but not always. So simple narratives (whether they’re about inflation, or trade wars or the weakening of the US dollar) are not enough to account for today’s gold market. Inflation alone cannot explain why gold prices remain elevated even as headline price pressures have eased. What gold tells us about the world There is more evidence for this in the fact that, according to the World Gold Council, central banks have been buying gold at the fastest pace in decades, particularly since 2022. This has continued even as inflation has fallen in many countries, again suggesting that these decisions are driven by longer term considerations rather than short term price movements. The decisions of central banks reflect concerns about resilience, diversification and trust. And to those banks, gold’s appeal lies squarely in the fact that it carries relatively little risk. It is not issued by a government like fiat currencies. It cannot be created at will like paper money. And it does not depend on the credibility of any single institution. So, in a world of high public debt, geopolitical fragmentation and increasing pressure on central bank independence, gold offers stability and insurance. And its price rises when confidence in the rules governing money becomes uncertain. That uncertainty can persist even when growth resumes or inflation falls. Seen in this light, gold’s recent surge does not signal a kneejerk panic or imminent collapse. Instead, it reflects a reassessment of long-term monetary confidence at a time when governments face difficult trade-offs between debt sustainability, political pressures and price stability. With its current high value, gold is not predicting a specific crisis. Nor does it provide a clear forecast for inflation. But it is revealing something important about the current moment. Markets appear less certain that the frameworks governing money, debt and policy will remain unchanged. That does not mean those systems have failed, but it does suggest their credibility is no longer taken for granted in the way it has been in the past. Gold does not predict the future. But it does offer a window into how confident markets are about the foundations of the world’s economics system.

Diplomacy
President Meloni meets with Chancellor Merz. Rome, 23/01/2026 – The President of the Council of Ministers, Giorgia Meloni, with the Federal Chancellor of the Federal Republic of Germany, Friedrich Merz. Under licence CC-BY-NC-SA 3.0 IT

President Meloni’s press statement with Chancellor Merz

by Giorgia Meloni

Good afternoon everyone, and thank you again for being here. I am very pleased to have hosted Chancellor Merz and his Ministers in Rome today for this intergovernmental summit between Italy and Germany – the second in just over two years, following the one we held in Berlin in November 2023. Among other things, this summit kicks off a particularly significant year for the bilateral relationship between our nations, with 2026 marking the 75th anniversary of the resumption of diplomatic relations between Rome and Berlin. This summit is also clearly being held at a particularly complex moment in time, which is forcing Europe to choose whether it intends to play a leading role in its own destiny, or have its destiny dictated to it. In our view, this phase requires clarity of mind, responsibility, courage and, above all, the intelligence required to transform crises into opportunities. I am personally convinced that, at this turning point in history, Italy and Germany have a special responsibility, by virtue of their history, influence and leadership. We are two great European nations, founders of the European Union and leading players in international dynamics. We are Europe’s two main manufacturing powers, with strongly interconnected production and industrial systems that are complementary in many ways. However, above all, we both share a common vision on some of the most strategic issues, and are in fact pursuing the same underlying goal: to build an authoritative Europe that is aware of its role in the world and is able to be competitive on the global stage, a Europe capable of strengthening its strategic autonomy with pragmatism, concreteness and common sense. Two years ago, in Berlin, we signed an Action Plan whose objective was to take our bilateral cooperation to a higher level and explore new areas for common growth. That is precisely what we have done over these years and months, as can be seen in the many examples of collaboration we have developed. I am thinking of the agreement on the security of gas supplies; the joint venture between Leonardo and Rheinmetall; the agreement for the integration of ITA Airways into the Lufthansa Group; and I could name many others. With today’s summit, we have decided to continue along this path and keep investing with conviction in our strengthened cooperation by setting ourselves even more ambitious goals. I believe I can now say that Italy and Germany are closer than ever, and I think this is good news, not only for our peoples, but also for Europe as a whole. For if two important nations are friends, allies, and solid from both an economic and an industrial point of view – as Italy and Germany are – and they decide to move in the same direction, with each contributing their own added value, then the conditions are in place to achieve excellent and significant results for our businesses, our workers, our citizens, and their families. Today, we have decided to strengthen our cooperation - cooperation in the truest sense of the word. As I have said before on several occasions: the etymology of words gives us back a picture and the underlying meaning of what we say. ‘Cooperation’ comes from the Latin ‘co-operari’, meaning ‘to work with’. Cooperation never involves an active and a passive role, someone who buys and someone who sells, for example. When there is true cooperation, something new is always born, with each party contributing their own added value. That is precisely what we are doing, and what we have done on this important day by adopting three very significant documents, in addition to the agreements you saw signed and exchanged earlier. The first is a cooperation protocol to expand our areas of collaboration, which updates the bilateral Action Plan we signed in 2023. I am thinking of agriculture, our plans to further strengthen our already solid industrial cooperation, cultural dialogue, and cooperation in the management of migration flows. Migration is one of the crucial challenges for our continent, on which there is full alignment with the German Chancellor. We both think the main challenge lies in defending the European Union’s external borders, fighting human trafficking, and working to ensure respect for legality in strengthening the return system, as well as in cooperating with the nations of origin and of transit, which Italy in particular (but not only Italy) is trying to develop through a new model of cooperation with the African continent. Clearly, our goal is to consolidate the change of approach which, thanks also to our governments, has taken hold and is becoming increasingly well established in Europe. Over the last years, this new approach has enabled us to guarantee a significant reduction in the number of irregular entries, illegal departures and landings. Italy also intends to pursue this commitment through innovative solutions, starting with the protocol with Albania we have been promoting. I want to tell Chancellor Merz that I am grateful for his decision to regularly participate in the informal working group of like-minded countries, which meets in the margins of European Council meetings to discuss precisely the issue of migration. The other very important matter on which Chancellor Merz and I agree is the need for a decisive step change in Europe regarding the competitiveness of our companies. It is now evident and clear to anyone with intellectual honesty that a certain ideological view of the green transition has ended up bringing our industries to their knees, giving Europe new and dangerous strategic dependencies, and without even managing to have a real impact in terms of protecting the environment and nature globally. We are convinced there is room to correct these mistakes and avoid our continent’s industrial decline, but, of course, courage is required. We want to accelerate on these issues, which is why we will be presenting our joint non-paper at the next informal meeting in Brussels on 12 February, where discussions will begin regarding the next European Council meeting in March - of particular importance precisely for matters regarding competitiveness. This joint non-paper is focused on a number of priorities which, in our view, cannot be postponed: simplifying and cutting EU red tape; strengthening the single market; relaunching the automotive industry based on technological neutrality; ensuring an ambitious trade policy based on shared rules and a level playing field. This is the second document we signed today, and it is a document which I consider to be very significant and which we intend to share with the European Commission and the President of the European Council as well as with all the other leaders who will be participating in these discussions. The third document we signed this morning on defence, security and resilience is equally as important. These are sectors in which Italy and Germany can count on industrial players of absolute excellence, which generate incredibly high added value. We want to strengthen our cooperation in this area, and we believe our production systems can make a significant contribution to building a solid European pillar within the Atlantic Alliance, which for many years we have been calling for without ever really making any progress, and to act accordingly. To this end, I have informed Chancellor Merz of Italy’s decision to join the multilateral agreement on arms exports, which is already in place between Germany, France, Spain and the United Kingdom. This is the reason why we held an important 2+2 meeting this morning between our Foreign and Defence Ministers, in order to coordinate our positions and also work even more closely together on the main international issues, starting with Ukraine and the Middle East. We have always been strongly aligned on both of these fronts too, and we will continue to do our part to achieve a just and lasting peace in Ukraine and to build a stable framework for security and prosperity in the Middle East. This morning, we also discussed how to enhance our cooperation in many other areas. I am thinking of energy interconnections and economic and infrastructure interconnections, which are increasingly crucial in this era. We are working together to support strategic initiatives that are in line with this goal, for example: the SoutH2 Corridor; Medlink; Elmed; and the IMEC, which is the corridor that will connect India, the Middle East and Europe, and in relation to which Italy and Germany are playing a key role in Europe. The work we have done, and have still yet to do, is very extensive. Today, Italy and Germany are not only confirming their partnership but are also deciding to strengthen it at all levels, by working side by side on challenges that are crucial for our time. I’ve read a number of comments over the last few hours, with some observers saying that 2026 will be “the year of Italy and Germany”. I can’t say whether this prediction corresponds to reality, but what I can say is that we intend to give it our all; we absolutely intend to do our part in order to consolidate a friendship that is strategic not only for our nations, but for Europe as a whole. Thank you again.

Defense & Security
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Trump wants Ukraine to give up the Donbas in return for security guarantees. It could be fatal for Kyiv

by Rod Thornton , Marina Miron

There is a major sticking point often overlooked in the ceasefire negotiations between Ukraine and Russia currently being held in Abu Dhabi. This relates to the fact that, as part of any agreement, Kyiv is being asked to give up the entire Donbas region in eastern Ukraine. If it does so, it will also be giving up the strategic positions that have prevented major advances by the Russian military for many months now. This is the significant line of defensive fortifications across the Donbas, known as the “Donbas line”. It’s Ukraine’s equivalent to the Maginot line of forts which were France’s main line of defence against Germany before the second world war. The “Anchorage formula” agreed by the US president, Donald Trump, and Russia president, Vladimir Putin, in Alaska late last year calls for Ukrainian forces to abandon the areas of western Donbas they currently hold. Washington is now talking up the idea of establishing a “free economic zone” or “de-militarised zone” which would cover the whole of the Donbas, including those portions currently occupied by Russian forces. This would mean Ukraine abandoning the Donbas line. The system integrates at least seven distinct defensive layers that any attacking force must penetrate sequentially to achieve effect. These include minefields, anti-tank ditches, anti-tank obstacles (“dragons’ teeth”), bunkers, trench lines and anti-drone defences. Such obstacles can either physically halt assaulting Russian forces or “canalise” them into swampy or otherwise impassible ground or into pre-arranged kill zones, wherein fires (mortar and artillery) can be used to destroy Russian formations. One of the most critical lines runs through the embattled town of Pokrovsk, which has been under constant Russian assault since early 2025. Lose Pokrovsk and the Ukrainians will then more than likely also lose the important city of Donetsk. Thus, Pokrovsk has been referred to as the “gateway to Donetsk”. The Donbas line took years to build and to perfect. It is very sophisticated. It would be a massive strategic blow for the Ukrainians if they were forced to give it up and pull back. In essence, the Russian demand that Ukrainian forces vacate the western Donbas can also be seen as a demand that they likewise give up, in the shape of this Donbas line, their one true means of protecting not only the western Donbas but also, arguably, the whole of the rest of Ukraine. Who can be trusted? If Kyiv were to accede to Russian demands and abandon the Donbas line, then this would only help bring about a lasting peace if, of course, trust could be placed in the Russians to keep their side of the bargain. They would need to cease all their assaults across Ukraine and themselves “de-militarise” the area of the eastern Donbas they currently control. But Putin has a history of reneging on deals. Anything agreed now by Kyiv in Abu Dhabi is likely, as respected Washington-based thinktank the Institute for the Study of War points out, to suffer the same fate. This seems to certainly be the view of many on the Ukrainian side. As Ukraine’s president, Volodymyr Zelenskyy, himself recently put it, “I don’t trust Putin”. He has good reason for doubting the Russian president’s bona fides. Russia was a signatory to the 1994 Budapest Memorandum alongside the US, UK and France by which those powers provided assurances for Ukraine’s sovereignty and territorial integrity in exchange for Kyiv giving up its arsenal of nuclear weapons. This didn’t stop Russia invading. Nor did the two Minsk accords in 2014 and 2015 which aimed to stop the fighting between Russian-backed separatists and the Ukrainian military in the Donbas region. In the event of any peace deal being struck between Moscow and Kyiv, Ukraine’s western allies have offered what they are calling “robust security guarantees”. These would be provided by a “coalition of the willing” made up of more than 30 countries, mainly from within Europe. What’s on the table In terms of what these promises might actually mean, there is a proposal for a three-tier mechanism. A Russian breach of the ceasefire would initially trigger a diplomatic warning, as well as allowing Ukraine to respond militarily. The second tier would be provided by the coalition of the willing, primarily the UK and France, which plan to send troops to Ukraine as part of the deal, but also many EU members plus Norway, Iceland and Turkey. The third tier would be a military response from the US. But it’s been reported that the US has made its participation in any security guarantees contingent on the agreement of a ceasefire deal which gives Russia control of the “entire Donbas region in eastern Ukraine”. A further issue here is that Moscow is unlikely to agree to the presence of any Nato troops as official security guarantors. Moscow has said as much, insisting that any foreign troops in Ukraine would be a “legitimate target”. Would western governments forces really commit their troops into a situation where they might become targets – leading perhaps to a wider war? The whole idea of Ukraine abandoning its Donbas line is fraught with difficulties. For this is not just a question of Ukraine trading land for peace. It is more fundamentally a question of trading land and significant defensive lines for the promise of peace. The original version of the Maginot line did not save France in 1940. It was bypassed by German forces moving through Belgium to outflank the Maginot fortifications. The danger for Ukraine is that its own Maginot line could itself be bypassed if it accedes to Russian demands at the negotiating table in Abu Dhabi. Can Zelensky really give up the Donbas line that is protecting his entire country, and can he really rely on security guarantees from western states that may yet prove equivocal? As one Ukrainian official told Reuters recently, to give up remaining positions in the Donbas region would be “suicide”.

Diplomacy
Washington DC, United States, August 9 2025: President Trump welcomes the Prime Minister of the Republic of Armenia to the White House for Bilateral and Trilateral meetings

“Move Fast and Break Things”. US opinions after the first year of Trump’s second term

by Hardy Ostry , Jan Bösche

Show strength, challenge traditions, put America’s interests — and its own — at the center: the first year of President Trump’s second term was a whirlwind of national and international change. In foreign policy in particular, he profoundly reshaped the role of the United States — and called the existing order into question. Opinion polls In recent years, it has become increasingly difficult for U.S. presidents to convince large majorities of Americans of their policies and to achieve high approval ratings. The situation is no different for President Trump: his approval ratings were last positive in March of last year. Since then, Trump has become increasingly unpopular. RealClearPolitics aggregates various polls and now sees a disapproval rate for Trump of almost 56 percent. [1] Only on the issue of border security does approval remain positive; for all other issues such as immigration, security, foreign policy, or the economy, disapproval is rising.[2] Inflation, healthcare, and jobs are the most important issues for the Americans surveyed, for which a majority now sees the competence with the opposing Democrats. Even Trump’s Republicans are rather dissatisfied with the president’s economic policies: according to an AP poll, only 16 percent of Republicans think he has done much to reduce the cost of living. In general, however, they still support Trump: eight out of ten Republicans surveyed give him a good rating. [3] Domestic Policy “Move fast and break things” – is the mantra of the Silicon Valley, that the Christian Science Monitor uses to describe the past year of the president. Trump made a lightning start: “He expanded the boundaries of presidential power and, in his first year after returning, issued more executive orders than in his entire first term. He bypassed Congress, challenged the courts, invaded Venezuela and arrested its head of state, took revenge on his supposed opponents, and redecorated the White House with gold fixtures and a large-planned ballroom.” Trump’s second term makes his first term look like a rehearsal: “It’s almost as if he spent his first four years in office figuring out how much power he really had and then came back determined to fully exercise that power.” According to an analysis by the progressive think tank the Center for American Progress, after the first year of Trump’s second administration, the American workforce is feeling the effects of misguided economic policies: “2025 was marked by chaotic tariff announcements, rising costs for everyday necessities, increasing unemployment, as well as historic cuts in healthcare, food assistance, and clean energy, which drove costs even higher.” The economic turbulence of the first year has left most Americans skeptical about the new year. The think tank cites a survey showing that nearly 70 percent of respondents expected 2026 to be a year of economic difficulties. “Despite Trump’s claim that 2025 was the ‘best first year in history’ for an American president, Americans’ perceptions of their economic security and the latest economic data tell a different story.” “Is Trump trying to lose the midterm elections for Congress?” asks former Republican presidential adviser Karl Rove in the Wall Street Journal: “It was a year full of rapid changes, controversies, and upheavals. It was also a year full of puzzles.” Why does the president repeatedly take actions that go against his political interests? “Trump misses the opportunity to win over key swing voters for the Republicans.” As an example, Rove cites immigration policy and Trump’s approach at the border: “He stopped the flow of illegal migrants. He was right. We didn’t need a new law, just a different president. But Trump did not capitalize on the success to publicize it.” Instead, the Trump team misplayed its hand by sending immigration officers to hardware stores to arrest day laborers without valid papers who had otherwise done nothing wrong. “Americans are increasingly unsettled by the president’s erratic appearances and late-night tirades. Whether it is his age or his advisers, who cannot rein in his worst instincts, Trump behaves differently from any American president before him.” Trump dominates many news cycles but drives no substantial political change, writes conservative analyst Yuval Levin in The Atlantic: “He has worked more around the formal powers of the presidency than with them, and his goal often seems less about governing and more about showing strength.” This approach appears attractive, especially to those on the political right who feel disadvantaged by the American elites. Trump has been able to extract real concessions from some institutions. However, this approach is short-sighted and reactive. Levin writes that in his first year in office, Trump signed fewer laws than any other modern president, and most of them were limited in scope and purpose. The only significant law was essentially an extension of existing tax policy. Otherwise, there were interventions like DOGE and deals. In doing so, the president’s discretionary powers are “used as a lever to influence behavior, rather than using the government’s administrative authority to set predictable, uniform rules for entire areas of society. In other words: they use arbitrariness as an instrument. This can be a source of real power in the short term, but it is ultimately very dangerous for public life in the United States.” Donald Trump will get a third term — by overshadowing his successor, analyzes John Harris of Politico. Trump is on the path to changing the character of the American government and the United States’ international relations more profoundly than any of his predecessors in recent decades: “The reach of Trump’s policies and his disruptive way of implementing them will almost inevitably dominate the campaign and the first term of his successor — perhaps even more so if that successor is a Democrat.” In this way, Trump gets a third term, even if he is not unconstitutionally trying to stay in office. “The task of repairing what Democrats and many others see as Trump’s vandalism means that the first day of the next president will be backward-looking — and probably also the first month and the first year.” Trump has expressed his mix of ideas, grievances, and vanities in a much more concrete, programmatic way than friends or opponents would have expected. He has become more radical and less restrained. “In his first term, his critics cried, ‘This is not normal!’ Only now, it is normal.” Foreign Policy Benn Steil from the Council on Foreign Relations analyzes “Trump’s new world order” and the contradiction between his campaign promise to focus on the U.S. and interventions such as in Venezuela: “The obvious contradiction reflects a fundamental shift in U.S. foreign policy thinking, which aligns with Trump’s preference but is independent of it: dominate what is easy to dominate, and appease or ignore what is not.” There is said to be a consensus within the administration, which is committed to maintaining the hemisphere’s dominance. There is an attempt to offset a withdrawal from persistent overseas conflicts with a simultaneous demonstration of strength closer to home. The goal is to restore the world order that existed before World War I, when America’s global ambitions were more restrained and its neighborhood was safer. What role will the United States play internationally this year? Leslie Vinjamuri of the Chicago Council on Global Affairs asks: “Will it be a stabilizing force? A peacemaker? Or will it continue to sow unrest?” Events at the start of the year have shown that Trump sees value in the latter. Trump does not feel bound by precedent, norms, or laws, and is not deterred by them. Neither allies, Congress, nor courts have so far given reason to believe that this could change. Trump is slowly changing public perception of sovereignty, territory, and national security: “There are already many people that look at maps of Greenland and think differently about its geography, significance, and proper place in the international order.” Whether Trump’s desire for public recognition will divert him from his pursuit of global power — or whether the public will be swept along by Trump — remains to be seen. William Alan Reinsch from the Center for Strategic and International Studies analyzes the president’s trade policy and constant new tariff threats. Whether these are economically sound steps is debatable, but they are undoubtedly politically savvy moves. The constant announcement of new “shiny objects” makes any detailed analysis of previous actions irrelevant: “When these decisions are announced, few facts are released, and by the time journalists, scholars, and other analysts have figured out what was actually decided and taken the time to assess its significance, the public has already moved on, captivated by the next shiny object.” The result is a lack of accountability. “When historians eventually write about this era, there will be accountability, but it will be too late.” The framers of the Constitution intended a government that acts prudently. Checks and balances were meant to ensure that no single branch of government holds disproportionate power over the others. When a president pursues so many political actions that they flood the space and undermine the oversight mechanisms, these accountabilities disappear. Donald Trump started 2026 as the true leader of Europe, writes Nile Gardiner of the Trump-friendly Heritage Foundation. In the first year of his second term, the Trump administration had already shaken the foundations of Europe to its core: “Trump may not be popular in Europe, but he is increasingly respected as a force to be reckoned with.” Trump is wrongly accused of being an isolationist. In reality, he cares far more about Europe than his predecessors: “He is the most transatlantic American president since Ronald Reagan and regards the salvation of Europe as a vital national interest of the United States. His approach to Europe is downright revolutionary. He is the first U.S. president to question the European project, and his ultimate goal is of great significance: the salvation of Western civilization itself.” The U.S. has every right to comment on the EU and Europe’s future because Americans have financed Europe’s security for decades. Whether President Trump actually has a plan is questioned by Thomas de Waal of the Carnegie Endowment. One version suggests he is trying to revive the Monroe Doctrine and govern the Western Hemisphere — a return “to an era of imperialism and spheres of influence”: “The threat he currently poses is primarily a threat of chaos. Calling the challenge a new Monroe Doctrine is only partly correct: it is more of a ‘Gone-Rogue Doctrine.’ However, it is no longer possible to establish spheres of influence in the 21st century in the old style. Trump needs to be reminded that he already has a modern variant: a friendly alliance stretching from Vancouver to Kiev, which he is now losing.” References [1] https://www.realclearpolling.com/polls/approval/donal d-trump/approval-rating [2] Beispielhaft bei Strength in Numbers: https://www.gelliottmorris.com/p/new-poll-trump-slipson-immigration [3] https://apnews.com/article/poll-trump-republicansimmigration-economy-inflation-costs634472fc2ee3b4477a7be997bbd0c69e

Energy & Economics
Cargo container with Eu and India flag. Concept of business and trade between Eu and India

Press statement by President António Costa following the EU-India summit

by António Costa

Thank you dear Prime Minister Modi, for welcoming us on this special occasion. We were privileged yesterday to be your Chief Guests for the Republic Day celebrations, such an impressive display of India’s capabilities and diversity. Today is a historic moment. We are opening a new chapter in our relations – on trade, on security, on people to people ties. I am the President of the European Council, but I am also an overseas Indian citizen. Then, as you can imagine, for me, it has a special meaning. I am very proud of my roots in Goa, where my father’s family came from. The connection between Europe and India is something personal to me. Also, because we conclude today our trade negotiations, we relaunched at the Leaders’ meeting that I had the pleasure to host, in May 2021, in my previous capacity. Our summit sends a clear message to the world: at a time when the global order is being fundamentally reshaped, the European Union and India stand together as strategic and reliable partners. Today, we are taking our partnership to the next level. As the two largest democracies in the world, we are working hand in hand: • to deliver concrete benefits for our citizens; and • to shape a resilient global order that underpins peace and stability, economic growth, and sustainable development. I would like to share three messages. First: the European Union and India must work together towards our shared prosperity and security. India is the world's fastest-growing major economy. Trade has flowed between our two continents for centuries. Trade is a crucial geopolitical stabilizer. And a fundamental source of economic growth. Trade agreements reinforce rules-based economic order and promote shared prosperity. That’s why today’s Free Trade Agreement is of historic importance. One of the most ambitious agreements ever concluded. Creating a market of two billion people. In a multipolar world, the European Union and India are working together to grow spheres of shared prosperity. But prosperity does not exist without security: • strengthening our cooperation to better protect our citizens and our shared interests; • working together to counter the full range of security threats we face, in the Indo-Pacific, in Europe and around the world; • reaching a new level of strategic trust between us. That is the significance of our agreement on a Security and Defence Partnership. The first such overarching defence and security framework between India and the European Union. And the first step towards even more ambitious cooperation in the future. This brings me to my second message: as the world's largest democracies and champions of multilateralism, the European Union and India share the responsibility of upholding international law, with the United Nations Charter at its core. Earlier this morning, we had the opportunity to pay tribute to Mahatma Gandhi. And I reflected upon his words which still hold true today: “Peace will not come out of a clash of arms but out of justice lived and done by unarmed nations in the face of odds.” Our summit reaffirmed our commitment to supporting efforts towards a comprehensive, just and lasting peace in Ukraine. One that fully respects Ukraine’s independence, sovereignty and territorial integrity. This is a key moment. We are supporting all efforts to reach a just and sustainable peace. Ukraine has shown its readiness, including at the cost of difficult compromises. I know, dear Prime Minister, that we can count on you to help create the conditions for peace, through dialogue and diplomacy. And this is my final message: together we must show leadership on global issues. Cooperation between the European Union and India will help shape a more balanced, resilient, and inclusive global order. Just two examples: I am proud of the commitments we are making for greater cooperation on clean energy, green transition, and climate resilience. And our collaboration through the Global Gateway and on the India–Middle East–Europe Economic Corridor is decisive for global connectivity. By implementing the ambitious Joint Comprehensive Strategic Agenda towards 2030, we will align our priorities with concrete actions for the next five years: delivering real benefits to our citizens. Today, we have tangible progress and set an example of cooperative leadership on global issues. With: • our Free Trade Agreement; • our Security and Defence Partnership; and • our Joint Strategic Agenda for 2030. These outcomes are a crucial milestone on a longer path. We look forward to continuing the journey. Together, as always. Thank you very much. Press statement by President António Costa following the EU–India Summit, 27 January 2026. © European Union / Council of the EU. Reproduced with permission; original meaning preserved.

Diplomacy
Business people in searching opened the box European Union. Thinking of who what where when why and how. Asking questions for solution to solve problem, business analysis. Vector  illustration

Five ‘What to do’ for the European Union

by Ivan Timofeev

Rarely in the history of the European Union has it faced challenges comparable to the ones it faces today. Since the end of the Cold War, the EU has been on the rise. Its membership has expanded quantitatively and qualitatively. Pan-European institutions and European law have been strengthened. Diplomacy and security policy have been taking shape. The EU has gradually become more like a confederation or a federation. However, it has lacked the centralized security structures to truly become a full-fledged state or even a super-state — primarily the armed forces. The EU has remained a junior partner of NATO and part of Euro-Atlantic security architecture, where the US has played a leading role. However, the question of the EU's strategic autonomy has gradually departed from purely theoretical considerations. While maintaining its role as an economic giant, Brussels has long remained a political dwarf. The Ukraine conflict has become a powerful political stimulus for expanding political opportunities, although the preconditions for such a dynamic existed earlier. Similar incentives are emerging in other areas as well. The European Union has been forced to provide immediate answers to the eternal question of "what to do," playing on several chessboards at once. What to do with the United States? A year ago, such a question would have rarely occurred to anyone. Brussels and Washington were closely aligned on the issue of containing Russia. There was also common ground on the issue of growing competition with China. The level of economic ties remained high. Military-political integration has been revived. NATO has welcomed two new EU members — Finland and Sweden. Surprises were expected from Donald Trump. But the experience of his first term still served as an indicator of their predictability. Moreover, the European allies themselves had been moving toward Trump's demands during his previous term — increased defense spending, energy purchases from the US, a rejection of Russian raw materials and so on. However, the US president has exceeded expectations, disconcerting the EU on several fronts. These include a special position on Ukraine, territorial ambitions for Greenland (formally part of Denmark, a member of the EU and NATO), a trade war affecting EU countries, criticism of the Old World in doctrinal documents and speeches by senior officials, as well as an overt policy of force. A close ally and key guarantor of security has transformed, in a matter of months, into a cold, calculating, and unpredictable player. The EU's actions regarding the American issue have so far revealed a wait-and-see tactic. In the medium term, the plan is to "outlast" Trump. His term will expire in three years. With that, a shift in foreign policy can be expected from the new administration. That is, if the Democrats come to power. In the short term, the plan is to avoid angering the American leader, to play on his personality traits (praising his achievements, avoiding criticism), to concede on certain issues, or to present as concessions what is inevitable. These include arms and energy purchases from the US and a trade balance adjustment in Washington's favour. The Greenland issue could be resolved using the same logic. The US military has de facto controlled the island for decades. Moreover, the United States formally remains an ally of Denmark and other EU countries. Why not concede? Especially if the procedure is carried out democratically. Of course, the Danish king or prime minister is unlikely to be kidnapped by American special forces, and they are unlikely to face charges in a US federal court. But Denmark risks being outvoted in the democratic process. The EU's perception of Donald Trump could be compared to the perception of the Russian Emperor Paul I among the Russian aristocracy and nobility. Paul was renowned for his eccentricity and was extremely unpopular. He fell victim to an inevitable conspiracy by his inner circle. But the expectation that problems with the United States will be resolved after a change of leadership, similar to the case in Russian history, rests on a fragile foundation. Unlike the Russian emperor, who became a lone figure on the throne, the American president is backed by a vibrant and young team, widespread support, and a consistent ideology. Donald Trump's departure is unlikely to resolve the EU's American problem. Moreover, his young successors could cling to their ally with an even tighter grip. What to do with Russia? In EU political rhetoric, Russia occupies the position of its most important and dangerous adversary. This approach took hold after February 2022, but had been brewing since the events in Crimea in 2014. Compared to the United States, maintaining a confrontational approach to Russia in a semantic sense is easier, as the identity structures of both sides already contain established, centuries-old patterns of mutual perception as a "significant other." (Neumann, I. (1999) Uses of the Other: "The East" in European Identity Formation. University of Minnesota Press.) Regarding the United States, such patterns have either not yet been developed or have been lost. The EU's approach to Russia over the past four years has been characterized by a fairly active policy of containment. This includes the consistent severing of trade and economic ties, even at the cost of economic damage to itself; large-scale military and political support for Ukraine; remilitarization and the restoration of the military-industrial complex; and attempts to influence third countries in their trade with Russia, not to mention information and ideological warfare. The problem for the EU is that the results have largely been negative. Yes, Brussels is doing its part to keep Ukraine afloat. Yes, Russia has suffered economic damage. Yes, defense spending is rising and the military-industrial complex is slowly recovering. Yes, third countries are wary of secondary sanctions. Yes, the information machine is working. But Russia hasn't gone anywhere. Its economy has been reoriented towards other areas, and its market for EU companies has been lost. Hostilities with Ukraine continue. Russia's military-industrial complex has been deployed, and its nuclear potential makes any Yugoslavia – or Libya-style solutions futile. Russia has its own financial and informational network, which has become more difficult, or significantly more difficult to influence. The good news for the European Union is that Moscow is unlikely to be planning military expansion against the EU countries themselves. War with them makes neither political nor practical sense for Russia, although the issue of responding to hypothetical military aggression by NATO or individual member states against Russia is likely to be addressed. Moscow cannot harm the Union with trade wars, and it simply lacks the desire to seriously fight for public opinion support. Ultra-conservative forces may at first glance seem convenient for Russia. But experience shows that conservatives and populists in power are hardly helpful in close foreign policy circles. Poland is a paragon of traditional values, but it is at the forefront of Russia's adversaries. In other words, Russia is a convenient foe. It can be fought through Ukraine and pinned on it the answer to the question of "who is to blame?" But at the same time, doing all this is relatively safe for the Europeans. The tactic toward Russia is loud and wait-and-see. Loud in terms of rhetoric. Wait-and-see in the hope that the Russian side will not withstand and collapse. Fortunately, there are many who support the theory of Russia's imminent decline. The problem for the EU is that not only Donald Trump, but also Vladimir Putin differs from the aforementioned Emperor Paul I. While Brussels hopes for the fatal blow with the snuffbox, Russia lives its own life. Apparently, Washington was the first to realize this. What shall be done with Ukraine? The answer to the Ukraine question is also seemingly simple: support Kiev by all means possible. In the short term, the practical policy here is more or less clear: continue financial and military support for Ukraine in order to restore it and prevent military defeat. In the medium term, there is greater uncertainty. The key issue is resources. The confiscation of Russian sovereign assets is still theoretically possible. But even if Brussels bears the full costs of such confiscation, it will not fundamentally solve the problem. The EU faces the prospect of becoming the main donor to a large and warring state with a very specific political system. The benefits of its integration into the EU are ambiguous. Furthermore, the problem of security guarantees and the material backing of such guarantees remains. Unlike the US, the EU is unlikely to be able to demand that Kiev repay its debts through enslaving agreements and then quickly distance itself from the problem. Regarding the Ukrainian issue, the EU may try to leave things as they are, while simultaneously awaiting a change of power in the US and potential problems in Russia. Brussels apparently has sufficient resources to keep Kiev afloat for a couple of years. The EU is likely prepared to accept further material losses for the sake of political principles, just as it did when it severed economic ties with Russia. At the same time, an agreement on Ukraine would also be in the EU's interests. Yes, Kiev is losing territory, but Ukraine remains a fairly large state. It will inevitably remain within the EU's political and economic orbit. An end to hostilities with a ceasefire along the line of contact would likely be more acceptable to the EU than the large-scale, legally binding agreement Moscow is insisting on. If US policy changes and problems escalate in Russia, a ceasefire would be more convenient for a new round of the Ukraine conflict. However, experience shows that even such agreements can be violated, so a binding agreement in itself is not a major problem for Brussels. It is important for the EU that Ukrainian losses in the negotiations are minimized, and that security guarantees do not expose the EU to the threat of military escalation directly with Russia. In answering the question of what to do with Ukraine, the EU will likely have to acknowledge the "realities on the ground." If the US continues to distance itself from the Ukraine issue, and the Russian army continues to advance, delaying such recognition will increasingly devalue Brussels's course. However, a willingness to adhere to this course at any cost cannot be ruled out. What to do with China? Compared to the United States, Russia, and Ukraine, China hardly poses a pressing problem for the EU. China remains a major trading partner and market. Secondary sanctions against Chinese companies for their cooperation with Russia have not yet led to complications. On the Taiwan issue, the EU has avoided taking a leading role in anti-China mobilization. Attempts by individual member states (such as Lithuania) to assert themselves on the Taiwan issue have not found much support in Brussels, and Chinese sanctions have further dampened their efforts. The EU has generally supported the long-standing US policy of curbing China's global economic projects and Beijing's high-tech capabilities. But in reality, there is no rush to undermine the foundation of economic cooperation with China in the western part of Eurasia. Within China itself, there is a countermovement. They don't generalize the US and EU into a single West and, apparently, proceed from the idea that the interests of Washington and Brussels differ. This means that relations with the EU are not identical to relations with the US. The complexities of transatlantic relations are likely to contribute to a situational rapprochement between the EU and China. In the political sphere, this is unlikely to be excessive, but rivalry is still a long way off. Anti-Chinese voices in the EU are likely to become quieter in the near future, despite Beijing's active cooperation with Moscow. China, with its predictable political course in the current turbulent conditions, is becoming an attractive partner for the EU. There are no immediate threats from it, but the benefits are more than sufficient. It's possible that Donald Trump will pressure the EU to adopt a more coordinated course toward China. Brussels could use such demands as a trump card. However, EU diplomacy will be unable to influence Russian-Chinese relations, and the conflict with Russia will be secondary in answering the question "what to do with China." What to do with the EU? It appears that the issue of internal transformation, taking into account external challenges, remains paramount for the EU. The logic of relations with China allows for no changes for now. However, here too, the prospect of intense competition over technological security remains under the rug. This will likely require more stringent regulatory measures. Political consolidation was required in relations with Ukraine, and it has the potential to gain more ground if necessary, seeking additional reserves. In relations with Russia, even clearer demands for increased levels of control have come to the fore. The change in the procedure for applying sanctions against Russia's sovereign assets is symptomatic. Now, it will be more difficult for individual countries, such as Hungary or Slovakia, to use their veto power in EU Council votes with regards to this issue. Finally, the US maneuvers raise a fundamental question: how do Europeans ensure their own security? For now, NATO remains an ironclad structure. But NATO's mere existence is unlikely to block deeper defense cooperation within the EU. Brussels has incentives to play a more significant role in NATO, and in the long run, the alliance itself could become a US-EU pair, rather than a conglomerate of European allies centered on the US. Resolving security issues will inevitably require the EU to become increasingly centralized and directive in its decisions, and thus, to reduce the effective sovereignty of its member states. The big question is whether the EU itself and its member states are ready for such a scenario, especially given the disparity in their potential and capabilities. Could the Franco-German tandem, for example, serve as the framework for such centralization? Does Brussels have the resources and legitimacy to align member states around a unified and firm political line? Is Greece, for example, ready, and what is Estonia ready for? Will it be possible to controllingly package their approaches into a single policy line where defense and specific military risks, including the risk of a clash with a nuclear power, are at stake, not just in words but in deeds? To simplify the question even further, is the European Union ready to devolve from a confederation/federation into a de facto empire? The unification of disparate states for military-political purposes will sooner or later raise the question of an imperial component, despite the seeming impossibility of such a development, if judged through the eyes of the post-Cold War era. Moreover, beyond the US, Russia, Ukraine, and China, there are other areas of common policy. Such a structural evolution could have a far greater impact on relations with other centers of power than situational issues. "What to do with the EU" could become a fundamental question for other participants in international relations.

Energy & Economics
Trade war policy in development.United States tariffs government import taxation for Europe,to increase the American economy.Industrial Tariffs growth.Import Trade Tariffs increase.

Why has Europe under-performed and fallen behind?

by World & New World Journal Policy Team

I. Introduction The European economy is in big trouble. Szu Ping Chan and Hans van Leeuwen, the economics editors of the Telegraph, a British daily newspaper, claim that the European Continent is stuck on a path of disastrous decline. [1] As Figure 1 shows, EU share of world GDP has continued to decline from 27% in 1990 to 17% in 2024.  Figure 1: EU share of World GDP (source: IMF) As a result, EU’s GDP in 2000 was six times larger than Chinese GDP, but EU’s GDP in 2025 is expected to reach the similar level of China’s GDP as Figure 2 shows. EU’s GDP in 2000 was $3 trillion smaller than US GDP, but EU’s GDP in 2025 is expected to be over $ 10 trillion smaller than US GDP.  Figure 2: EU, US, China, Japan GDP, 2000 & 2025 (source: Alcott Global) Moreover, the Ukraine war in 2022 brought more uncertainty to Europe by creating energy problems for the European economy. Europe’s reliance on external energy sources has been a long-standing issue. The energy crisis that began in 2021, fueled by the Ukraine war and climate change, has exposed how fragile the region’s energy infrastructure remains. Skyrocketing LNG prices, unreliable renewable energy production, and Russia’s strategic use of fossil fuels as leverage have left the European continent struggling with record-high energy costs. With this information in background, this paper explores why the European economy has under-performed and fallen behind. This paper first describes the current economic situation of Europe and explains why the European economy has failed. II. The Current Situation of European Economy Europe may be a great place to live with free health care, generous welfare, and great cities. However, when we compare the economy of three major economies, the US, Europe, and China, it is obvious that the European economy is in big trouble. Europe is being squeezed by the US and China. As Figure 3 shows, economic growth has been anemic across Europe. Germany has been its worst performer in recent years. The German economy is the same size today as it was in the fourth quarter of 2019. In other words, it has had five years of lost growth. But the rest of Europe has not fared much better. The French economy is only 4.1% larger than it was in the final quarter of 2019, while Italy’s economy is 5.6% bigger. (See Figure 3.) And while Spain’s GDP has increased by 6.6% since then, this has been helped greatly by an influx of immigration that meant that GDP per capita has increased by only 2.9% over the same period. By contrast, the US economy has grown by 11.4%.  Figure 3: Real GDP (Q4 2019 = 100) (Source: LSEG, Capital Economics) As Figure 4 shows, over the period 2020-2024, the EU’s total GDP growth was 12.2% compared to 23.4% for China, 15% for the US.  Figure 4: Growth, EU, US, China, and Japan, 2020-2024 As Figure 5 shows, the EU grew only 1.1% in 2024 compared to 2.8% for the US and 5.0% for China. Figure 5: GDP growth, EU, US, China, and Japan, 2024 Moreover, when we compare the economies of two Western rivals, the US and Europe, it is obvious that the EU has grown slower than the US, as Figure 6 shows.  Figure 6: US grow faster than EU countries, 2010-2024 (source: World Bank) As Figure 7 shows, Europe’s unemployment has been higher than the US.  Figure 7: EU unemployment is higher than US, 2000-2024 As Figure 8 shows, Europe’s LNG price has been higher than US price during the 2020-2024, and higher than Asian price immediately after Russia invaded Ukraine, thereby burdening the European economy.  Figure 8: LNG price, EU, US, Asia, January 2000-January 2024 Furthermore, when it comes to new engines of growth – big tech, AI, electric cars, Europe has slipped behind both the US and China. Europe is being squeezed by cheaper imports in China and better tech in America. III. Causes of the Failure of European Economy Why has the European economy failed? According to Neil Shearing, a chief economist of Capital Economics, Europe’s under-performance has been due in part to the effects of the energy crisis following Russia’s invasion of Ukraine as Figure 9 shows Europe’s skyrocketing gas prices. [2]  Figure 9: Natural gas prices, Europe, US, Japan, January 2021- end 2024 In addition, as Figure 10 shows, energy prices in the Euro area reached an all time high of 171.75 points in October of 2022 following the Ukraine war. It decreased to 145.49 points in November 2025, but it is still too high.  Figure 10: Energy price, Euro zone (source: Eurostat) As Table 1 shows, dependence on energy imports has shown divergent trends since 2000: The US has dramatically reduced its reliance on energy imports and become a net exporter, while the European Union has maintained a high level of energy dependence, and China’s dependence has generally increased along with its enormous economic growth. The US has undergone a remarkable transformation. Around 2005, US crude oil imports reached a peak at about 60% of their consumption. Thanks to the shale revolution and growing renewable energy use, US domestic production soared, and the US became a net energy exporter in 2019. By 2024, US energy imports made up only 17% of its energy demand. China’s rapid economic growth has driven a massive increase in energy demand. As a result, its dependence on energy imports has increased significantly since 2000. China is the world’s largest importer of crude oil. While China is also the leading investor in renewable energy, which meets a portion of its growing energy demand, the absolute need for fossil fuel imports to power its industrial sector remains high. In 2024, energy imports met around 25% of their total energy demand. Table 1: Dependence on Energy Imports, 2000–2025 As Figure 11 shows, the EU consistently shows high dependence on energy imports over the last three decades during the 1993-2024 period. The EU’s dependence on oil and gas imports have been much higher than the US and China. EU’s dependence on oil imports was over 90%, while EU’s gas import dependence reached over 90% in 2023 following the Ukraine war. While the EU has made progress in renewable energy, it remains heavily reliant on oil and gas imports, and has recently shifted its import sources from Russia to other partners such as the US and Norway. This high dependence on energy imports and energy crisis in Europe following the Ukraine war led to a deterioration in the region’s terms of trade that manifested itself in a large squeeze in real incomes and loss of competitiveness of energy-intensive industries, thereby lowering economic growth in Europe.  Figure 11: Dependence on energy imports, EU, US, and China, 1993-2024 In addition, European households have also become more reluctant to spend, thereby leading Europe to lower growth. The household saving rate in Europe is now three percentage points higher than it was before the Covid-19 pandemic in 2019, while the savings rate in the US is now lower than it was in 2019. (See Figure 12.) The tendency of Europeans to spend less leads to lower growth in Europe.  Figure 12: Euro-zone household savings rate (% of disposable income) However, the weakness of the European economy is fundamentally structural. There are several elements to this. The first key issue related to low growth in Europe is regulation in Europe that stifles competition and innovation. The EU has become increasingly protectionist, mainly through regulation. While convenient, this strategy proves counterproductive. It eliminates the incentives for creativity and efficiency. The Digital Services Act and increasingly narrow interpretations of the General Data Protection Regulation (GDPR) were intended to rein in US tech giants, but have instead held Europe back in these same sectors. The AI Act and supply chain laws are similarly damaging. It is perhaps no surprise that the major disruptive and innovative firms of the past two decades have come from the US and China rather than from the Euro-zone countries. Robot taxis are a good example. One in three taxi rides in California is already in a robot taxi. The growth has been exponential and they are set to overtake ordinary taxis. The market opportunity is huge; they will be cheaper than paying a driver. In Texas, Tesla charges just a dollar a mile. They are safer too – 90% fewer accidents. And that means cheaper car insurance. They will save income, decrease emissions and reduce the need to buy an expensive car. It’s not just America; 2,000 self-driving cars have already been transporting millions across the big cities in China. But, for Europeans, the idea of a self-driving car, is still the stuff of science fiction. Or more accurately, something blocked by the European love of regulation, risk-aversion, and a powerful car lobby still stuck in the combustion engine era. [3] Another example is the tech industry. Europe is hampered by fragmented and excessive regulation. A US start-up can launch a product under a single regulatory framework and immediately access a market of more than 330 million consumers. The EU has a population of about 450 million but remains divided among 27 national regulatory regimes. An IMF analysis shows that internal market barriers in the EU act like a tariff of around 44% for goods and 110% for services – far higher than the tariff levels that the US imposes on most imports. [4] True, Europe has some successes such as Revolut, Klarna and Spotify, but these are dwarfed by the US giants of Meta, Google, Microsoft and Apple. Today, approximately half of the world’s 50 largest technology firms are American, while only four are European companies. [5] Over the past five decades, 241 US firms have grown from start-ups into massive unicorn companies. The EU’s response has been to seek to regulate the murky world of big tech surveillance, but in a way, the sledgehammer of GDPR regulation has done more to increase costs for local European business and tech startups as Figure 13 shows. While California alone has produced a quarter of the world’s tech unicorns, Germany-a similarly sized economy-has produced just 2% of high-value start-ups. Without urgent reform, Europe risks being sidelined in the global technological race.  Figure 13: GDPR regulation and EU & US Venture capital There is an old saying: the US invents, China imitates, and Europe regulates. Harsh, but an element of truth. Though the big change is that China no longer imitates, but produces goods much cheaper than in Europe. But Europe is still stuck in a regulatory mind-set. The result is that productivity growth in Europe - which is the key determinant of economic growth over the long run - is substantially lower, averaging 0.3% a year over the past decade compared to 1.6% a year in the US. The second issue is Europe’s insufficient investment in new technologies (computers, artificial intelligence (AI), software, etc.) and the low level of spending on research and development (R&D). When we compare OECD countries, we see that these two components have a strong influence on productivity differences between countries. The econometric estimate leads to the following effects: a 1- point increase in the rate of investment in new technologies leads to a 0.8 point increase per year in productivity gains. In a similar way, a 1-point increase in GDP for research and development (R&D) expenditure leads to a 0.9 point increase per year in productivity gains. [6] The fear is that Europe will be drawn into a vicious circle By 2022, investment in new technologies represented 5% of GDP in the US and 2.8% of GDP in the Euro zone. The EU’s efforts in advanced technologies, such as AI and cloud computing, far from match those of the US. The main instrument available to the EU, the European Innovation Council, had a budget of 256 million euros in 2024, while the US allocated more than 6 billion dollars for this purpose. The situation is repeated when looking at venture capital investment. In 2023, they invested about $8 billion in venture capital in AI in the EU, compared to $68 billion in the US and $15 billion in China. The few companies that create generative AI models in Europe, such as Aleph Alpha and Mistral, need large investments to avoid losing the race to US firms. However, European markets do not meet this need, pushing European firms to look outside for funding. [7] As a result, for example, the EU has been losing the open model contest as Figure 14 shows.  Figure 14: Cumulative downloads, 2023-25 (source: ATOM project, Hugging Face) Moreover, the EU falls behind the US and China in terms of R&D spending. R&D spending in 2022 amounted to 3.5% of GDP in the US and 2.3% of GDP in the Euro zone. What’s more, from 2007 on, as Figure 15 shows, R&D spending in the US and China increased significantly compared to that of the Euro zone. The lag in technological investment and R&D explains a large part of Europe’s lag behind the US in terms of labor productivity and GDP. [8]  Figure 15: Gross domestic spending on R&D, 2007-2023 The third issue related to lower growth in Europe is the size of welfare states in Europe. The size of welfare states differs markedly across OECD countries. European countries have the largest welfare states in the OECD and among the highest in the World. As Figure 16 shows, European welfare states are significantly larger than in the US, with EU countries allocating approximately 27% of GDP to social benefits in 2024, compared to roughly 19.8% in the US. Some European countries like Austria, Finland, and France spend over 30% of GDP on social benefits in 2024. While the US spends 7% of GDP on public provision of pensions, it is 16% in Italy and it is 13% in France.  Figure 16: Public social spending as a % of GDP in 2024, EU countries & US Big welfare states have a complex, debated impact on economic growth, with evidence showing they can both impede growth through higher taxes and reduced work incentives, or foster it by boosting education, stability, and innovation. However, there has recently been a groundswell of opinion among economists that the scale of the welfare state is one of the elements responsible for slower economic growth and that a retrenchment in the welfare state is necessary if growth will be revived in Europe. The welfare state is indicted with the charge of becoming a barrier to economic growth in Europe through higher taxes and reduced work incentives. As Figure 17 shows, the tax burden is higher in the EU than in the US for most taxpayers. The overall tax-to-GDP ratio for the EU averages approximately 44%. By contrast, the US ranks as one of the lowest among developed countries, with a tax-to-GDP ratio 35% in 2022 approximately 9% lower than the EU average.  Figure 17: Tax burden, EU and US, 2022 (source: OECD Government at a glance, 2023) Figure 18 shows the total tax wedge for average single workers in each member country of EU. Belgium, Germany, Austria, and France confiscate more than half of their workers’ pre-tax compensation. Compared to the EU member countries, workers in the US face the lowest average tax wedge. This distorts work incentives for Europeans and renders everyone in Europe poorer. [9] High taxes and less work incentives make EU citizens spend less than US citizens, thereby lowering economic growth in Europe as Figure 19 shows.  Figure 18: EU workers pay more taxes than US workers, 2022 (source: OECD Government at a glance, 2023)  Figure 19: Americans spend 70% more on EU citizens (Average individual consumption per capita, 2020; United States indexed to 100). (source: National Accounts of OECD countries) In fact, Gwartney, Holcombe and Lawson (1998) showed empirically that as the size of general government spending has almost doubled on average in OECD countries from 1960 to 1996, their real GDP growth rates have dropped by almost two thirds on average (see Figure 20). According to them, the worst economic performers were some Southern European countries that increased the size of the government the most.  Figure 20: Big government spending reduces growth. At the height of the Euro-zone crisis in 2012, German Chancellor Angela Merkel tried to make the case that Europe’s welfare states were too large, as Europe accounted for 7% of the global population, for a quarter of global GDP and for 50% of global social spending. The situation has not improved since then. On September 9, 2024, Draghi presented his report “The Future of European Competitiveness,” a 400-page document, to deal with Europe’s sluggish economy, but he kept untouched Europe’s over-sized welfare state, while he strongly called for reforms and investments to reinforce productivity growth. [10] The fourth issue is the Euro. The Euro has been a mixed blessing for Europe. It lowers transaction costs but highlights an unbalanced EU economy. Germany runs a large current account surplus, fringe economies like Portugal and Greece running deficits. But there is no scope for Germany to appreciate, weaker countries to devalue. One size fits all. But, this can have disastrous effects. The Euro Debt Crisis of 2012, led to high bond yields and a response of austerity, which contributed to weak growth in the last decade. Mario Draghi’s intervention reduced bond yields, but the European Central Bank has been criticized for a deflationary bias, and it has certainly struggled since the Covid-19 era, with growth in Europe much less. IV. Conclusion This paper showed that the European economy is in big trouble with lower growth. This paper explained that Europe’s economic under-performance & sluggish economy can be attributed to energy crisis and high saving, as well as over-regulation, large size of welfare state & high taxation, and lack of innovation & low investment in new technology and R&D. Referencias [1] https://www.telegraph.co.uk/business/2025/12/14/rising-fear–europe-really-is-doomed-and -taking-britain-down/ [2] https://www.capitaleconomics.com/blog/its-not-just-france-europe–faces-ongoing-decline- without-fundamental-reform-its-core [3] https://www.capitaleconomics.com/blog/its-not-just-france-europe–faces-ongoing-decline- without-fundamental-reform-its-core [4] https://www.project-syndicate.org/commentary/europe-most-serious-problem-not-immigra tion-but-technological-backwardness-by-nouriel-roubini-2025-12 [5] https://www.project-syndicate.org/commentary/europe-most-serious-problem-not-immigra tion-but-technological-backwardness-by-nouriel-roubini-2025-12 [6] https://www.polytechnique-insights.com/en/columns/economy/economy-why-europe-is-falllling-behind-the-usa/ [7] https://www.polytechnique-insights.com/en/columns/economy/economy-why-europe-is-fall ing-behind-the-usa/ [8] https://www.polytechnique-insights.com/en/columns/economy/economy-why-europe-is-fall ing-behind-the-usa/ [9] https://mises.org/mises-wire/europes-economy-slows-its-welfare-state-grows [10] https://www.csis.org/analysis/draghi-report-strategy-reform-european-economic-model