Europe’s ability to preserve its social model and assert its strategic interests depends on its capacity for integration, argues Arvind Ashta.
The relationship between the United States and Europe, a cornerstone of post-World War II geopolitics, is facing new challenges. Recent shifts in US policy and rhetoric raise questions about the future of this alliance, particularly concerning economic and security cooperation.
One key point of contention revolves around differing economic models. The US, with its emphasis on market-driven growth, has produced significant wealth, but also notable income disparities. In contrast, European nations have prioritised social welfare systems, aiming for a more equitable distribution of resources.
While average incomes may be lower in Europe, a gap that is exacerbated by the inclusion of many developing countries, these policies contribute to a sense of social stability. It’s important to consider both average and median income figures, along with Gini coefficients, for a more accurate picture of economic well-being in both regions.
Transatlantic tensions
From a strategic perspective, the US, especially Republicans, may perceive the European social model as a competing ideology, often favoured by Democrats. This could lead to efforts to undermine Europe’s perceived success, such as encouraging increased European defence spending.
This strategy also aligns with the desire of the United States to maintain its position as a leading arms exporter. However, for many European countries, these defence expenditures may be less useful, as the countries have come together in the Union. Indeed, the promise of peace is a great motivator for unity.
To strengthen its argument for arms sales, the US has raised concerns about the trade imbalance, highlighting Europe’s substantial surplus. Yet a more comprehensive view requires acknowledging the deficit in services, which partially offsets this surplus.
Clearly, at the current dollar exchange rate, consumers and businesses do not value American goods. If US conservatives truly believe in the price mechanism, the dollar should have plummeted if the deficit with any one region was a concern. Other factors in the balance of payments ensure that the dollar remains strong. The US administration’s preference for bilateral negotiations, rather than multilateral approaches, reflects a desire to leverage its influence to resolve such problems.
In this context, Europe faces a critical decision: how can it navigate these tensions and strengthen its strategic autonomy? Achieving a unified voice in foreign policy is crucial. The current fragmented approach hinders Europe’s ability to effectively engage with external actors.
A different path
EU politicians, with the exception of those from Hungary, have agreed to spend money on arms. This will cost us dearly. The speed at which our politicians are opting to spend money on arms, bought or created with money we don’t have, and stick the bill to the next generation, is only matched by the speed at which they spent on COVID-19 vaccinations and bailouts.
While the latter expense was warranted in my view, I am not sure the former on armaments is. Politicians need an excuse to take action, and the US seems to have provided that excuse. Since our political actors are not all, I hope, wanting to be the instruments of human destruction, I offer them a simple strategy to remain humane and align means with ends.
First, Europe should embrace federalism and confer defence and external relations to the federal level. Second, it should make customs duties, enhanced by the notable tariffs that Donald Trump is advocating, attributable in whole or in substantial part to the federal level. Third, it should use these funds to manufacture or buy arms, if democratically elected representatives agree. Finally, if these funds are sufficient, then there is no need to take a loan.
All unnecessary deficit spending will create inflation (just as in post-COVID), raising interest rates and leaving pensioners and people on fixed incomes to pay the bill. Let them clearly know that they will pay a high price. Tariffs can increase public revenues and contribute significantly to the national treasury. However, long-term dependence on tariffs can lead to economic inefficiencies and slow growth. Thus, if the US and EU wish to play with tariffs, they must understand that they should do so sporadically.
If we must take loans, it is preferable to have European loans for European manufacturers, especially since the final product will, hopefully, not be used. But instead of loans, I would have raised equity. If 30% of American pharmaceutical companies go public before even generating revenue, defence companies benefiting from guaranteed access to public markets (i.e. paid for by the taxpayer) can certainly also opt for an IPO before even generating revenue.
By the time they actually produce the goods, we could have raised sufficient tariffs to finance them. Granted, we taxpayers would still have to pay the bill for our defence, but at least we wouldn’t have the interest on the bonds to pay on top of that.
Instead of solely focusing on increased arms purchases, Europe could explore alternative solutions to address the trade imbalance. For example, targeted public procurement policies favouring US-made goods, such as vehicles or specific agricultural products, could be considered.
Such measures would represent a more constructive approach to fostering economic cooperation. The question is what the US can supply other than expensive oil and gas or wasteful armaments that could be consumed at a public level. In particular, what non-strategic goods can the US supply?
Reducing dependence on the US
Europe’s ability to preserve its social model and assert its strategic interests ultimately depends on its capacity for greater integration of existing members. This may involve moving towards a more federalised structure, including the development of a unified defence capability and centralised public spending.
A second alternative would be to enter into agreements with more non-aligned countries who may also see the US as overbearing. The final alternative is to accept a more dependent position within the transatlantic relationship, accepting whatever demands are made. Canada and Mexico have not accepted this.
While Europe seems to have mobilised itself in borrowing to spend on arms, it should keep in mind the following: an ocean separates the US from the EU, both geographically and in values. They value high spending on arms and want to impose that wasteful expenditure on everyone else. We must also realise that we are totally dependent on social networks and applications like LinkedIn, Google, Zoom, Facebook, X and WhatsApp. There is no European option in any of this. This means we can be easily manipulated. The EU is researching new military intelligence satellites to reduce its dependence on the US. It is encouraging to see the EU taking action. Hopefully, it will use tariffs to fund this project at the federal level. This would not only allow for economies of scale but also foster ties conducive to peace. It could also stimulate private initiatives capable of competing with Starlink. European investors could ultimately become wealthy by taking risks in this area.
Note: This article gives the views of the author, not the position of EUROPP – European Politics and Policy or the London School of Economics. Featured image credit: Jimwatson / Shutterstock.com
