How can Europe hold its own in a multipolar world?

The peace dividend is spent. Russia’s escalating military aggression against Ukraine, Donald Trump’s return to the White House and China’s burgeoning technological advancement and export dependency have fundamentally altered the rules-based international system into which the EU was born. While Europe’s necessary rearmament poses hard economic trade-offs for already debt-burdened member states, the near-term macroeconomic effects of Trump’s weaponised uncertainty and China’s mercantilism have remained modest.

But this is no reason for complacency. As we argue in a new paper presented to the European Council’s ECOFIN configuration, while short-term risks continue to lurk, the EU’s real challenges lie in the medium-term, with US-China rivalry and increased multipolarity promising to dominate geopolitics into the mid-2030s. The outcome of our analysis is clear: in all plausible scenarios, the EU must strive towards a far higher degree of strategic autonomy by enacting an ambitious domestic reform and foreign policy agenda.

The EU must rapidly build military autonomy within a NATO alliance still characterised by transatlantic military inter-operability but not defined by the US Article 5 security guarantee. This means instituting a genuine single market for the defence industry, promoting AI adoption and creating a European equivalent to the US Department of Defense’s Defense Advanced Research Projects Agency to promote innovation in dual-use technologies. To secure its economic welfare, the EU should introduce a digital euro and well-regulated euro-based stablecoins, integrate Europe’s electricity network to lower costs and emissions, promote critical raw materials recycling, practise selective stockpiling and innovative substitution, and reform its fiscal rules to enable low-debt members’ pursuit of European policy goals.

Globally, the EU can reject protectionism by pursuing an assertive rules-based trade liberalisation agenda with like-minded – and especially non-OECD – countries. Beyond trade, the EU must step up to form and lead coalitions of the willing to protect global public goods, first and foremost the climate.

The Why Axis is a weekly newsletter distributed by Bruegel, bringing you the latest research on European economic policy. 

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