The European security order in change

The EU and Europe need an effective European strategy with regard to a changed geopolitical and commercial economic environment.

Although the threat has long been recognized from totalitarian regional power regimes that form authoritarian alliances and seek anti-Western coalitions, a common European strategy has not been sufficiently developed and unified.  
Although the challenges are obvious, here are some things Europe's strategy needs to take into account:

• Full-scale war in Europe where Ukraine's defense strategic position is threatened
• European competitiveness and trade policy position in the world is deteriorating and in a negative spiral (e.g. the Draghi report)
• Increased tensions in the Pacific region
• Spread of conflicts in the Middle East, most recently in Syria
• NATO and the transatlantic cooperation are re-evaluated with new requirements
• A Middle East in flux, where the implications of developments in Syria are still unknown.
• NATO and transatlantic cooperation being re-evaluated with new requirements

The biggest awakening seems to have taken place after the Trifecta victory of Trump and the Republicans in the US election. The reality that Europe must take greater responsibility for its own security and that the US can make great demands on the EU and Europe in terms of both trade policy and security policy, seems to lead to action. This happens at the same time as we have political unrest in Germany & France, which form the cornerstones of the EU where consensus is often required for the Union to move in any direction. 

The new EU Commission & Presidency change the conditions for the European defense industry, however, mainly in the longer term

From a security policy point of view, it is positive that Poland will become the new chair country and replace Hungary, which mainly pursued its own agenda. Poland has already started to act to rally the member states around support for Ukraine and strengthen European defense cooperation. 

On 1 December, the new European Commission under Ursula von den Leyen took office again but now with a restructured organization focusing on economic competitiveness, energy security and defence. The most significant changes are: 

• Special Commissioner for Defense – reflects the EU's increased commitment to common security and defense policy
• Trade and industry positions are integrated with the defense sector to promote innovation and strengthen the EU's strategic autonomy
• Trade and industrial policy directly linked to security policy issues, which facilitates coordinated efforts and own defense production within the EU.  

In summary, the new European Commission's structure and priorities entail a significant reorientation of the Union's trade, industrial and defense policy, with the aim of strengthening Europe's security and strategic autonomy in a changing global context. 

The Commission's structural change is a logical one and adapted to the changed geostrategic and geoeconomic worldview, but the only thing that really matters is if it is effective and on time. The EU does not have a strong track record when it comes to being effective and efficient. 

The need for a unified EU strategy applies not only to Russia but also globally

The EU is faced with an urgent need for a coherent and strategic stance, especially vis-à-vis Russia. This includes a long-term strategy for reliable energy supply as well as effective sanctions. The EU's challenge lies in the fact that the member states have different views of the Russian threat partly due to geographical location, partly trade dependencies and add to that domestic political conditions, which complicates effective measures. 

At a time when global trade patterns are changing and trade policy is becoming increasingly integrated with security policy issues, Europe and the EU need a clearer strategy also globally, especially in the Pacific region and in Africa. These regions will grow in importance and especially China and Russia are active in concluding bilateral agreements and putting countries in trade economic dependencies to them. This must be addressed. The EU needs to have a clearer strategy to ensure competitiveness, reduce vulnerability in supply chains and not least in a renewed strategy towards China. This demand will be made by the US regardless, and this is something that Europe still has to deal with.  

Trump's stance and its implications for Europe

Regardless of the outcome of the election, it is clear that Europe must take greater responsibility for the security of Ukraine and the entire continent. Trump's stance on Ukraine is that this issue is primarily a European concern. Statements of a 24-hour peace settlement are not credible, but a peace settlement that prioritizes US strategic interests, potentially at the expense of European security and Ukraine's territorial integrity, may be possible. 

It should be noted that there is no benefit in giving Russia and indirectly China a foreign policy and military strategic gain in Ukraine. The need for US support gives the Trump administration clear leverage and their pronounced transactional policies could lead to costly challenges for Europe, especially as Europe depends on NATO and transatlantic security policy cooperation. 

It is likely that Trump, in return for security guarantees and to avoid NATO becoming dormant, will demand a rapid adaptation to higher defense budgets around the European member states and that the budgets should be largely directed to the American defense industry. This risks long contracts and clashes directly with Europe's strategy of purchasing 50 % of the defense equipment within the region. 

The Trump administration's clearest security policy goal is to limit China's trade policy development and the security policy threat that China poses. For it to be effective, the US still needs the support of the EU because the EU is China's largest export market. The administration will likely place high demands on Europe regarding its approach to China, something that could be particularly difficult for export-dependent economies such as Germany. 

Possible security policy strategy going forward

In order for Europe to be able to face the security policy threats, the following variables are central:

European support to Ukraine: 

• Europe must intensify its military and financial support to Ukraine, especially through cooperation between willing nations such as Poland, the Baltics and the Nordics. 
• EU membership would also strengthen Ukraine's position and conditions for the EU to act. 

Transatlantic coordination through NATO: 

• NATO membership is the most credible security guarantee for Ukraine.  
• A NATO-based solution that could appear a success for Trump is best placed to balance transatlantic needs and Europe's security. 

Long-term strategy including sanctions and trade policy measures: 

• Increased defense spending, investments in defense industry & innovation. 
• Tightened sanctions against Russia are crucial to strengthening Europe's position. Another challenge is to gain acceptance for the sanctions internationally. 
• Europe must reduce its dependence on the US and deal with internal divisions in order to act united against external threats. 

United Russia Strategy: 

• By strengthening support for Ukraine and adapting to new transatlantic dynamics, Europe can build a long-term sustainable security strategy and emerge as a stronger geopolitical actor. 

The US foreign policy shift forces Europe to intensify its military and financial support to Ukraine. The initiatives that take place in a coalition of willing nations, including Poland, the Baltic states and the Nordic countries, are important for the short-term support for Ukraine but also for the long-term strengthening of Europe's strategic autonomy.  

Despite that, our assessment is that the only credible strategy to meet the threat from Russia in the short term can only take place in cooperation with the United States. A European coalition with security guarantees would probably not be considered credible. European troops in Ukraine feel far removed when unanimity in support is already a challenge.  

It becomes clear that the most important thing for Ukraine is NATO membership because it would provide the most credible security guarantees, but EU membership would also be positive.  

Economic considerations also play a role in shaping Europe's response. Increased defense spending, investment in military industrial capacity and tightening of economic sanctions against Russia are necessary to strengthen Europe's position. At the same time, Europe must navigate its trade relationship with the US and balance the need for cooperation with potential US tariffs under the Trump administration. 

A transatlantic solution based on NATO that can be combined with something that Trump can bring forward as a foreign policy victory at home would probably have the best conditions. Europe needs to protect the transatlantic relationship but also not fall for Trump's domestic political agenda, the need & benefits are mutual albeit with short-term vulnerability for Europe. 

The Ukraine crisis has highlighted the fragility of European security and highlighted the importance of long-term measures to reduce vulnerability and US dependence. Europe must overcome different perspectives and interests among member states as it is crucial to act united against external threats. 

Europe this reinforces the need to act united and advocate a just and sustainable solution to the conflict. 

By developing a united Russia strategy, strengthening support for Ukraine and adapting to the changing dynamics of transatlantic relations, Europe can navigate these challenges and emerge as a stronger geopolitical actor. 

Joakim Agerback & Shayan Heidari
Portfolio manager Finserve Global Security Fund I