Special Edition: The Coming Bear Market and Fortress Europe
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Coming up this week, an Audio Essays special edition

Philip and I going head to head, half an hour each on two big stories that have a more medium term feel than the usually weekly news items. In the red corner, Mr. Pilkington takes on the bear market. Is an icy wind coming for global stocks? And how could it play out? From the bottoming out of Nvidia to the coming age of tariffs, what are the key triggers? Then I'll be taking on medium term Europe.

As the US shrinks from its hegemonic duties, will the EU seize the moment to attempt to federalize through the stalking horse of rearmament? And given recent trends, could this Lager mentality also come with a doubling down on its own unique brand of autocracy? But first, here's Philip on Liberation Day. Hello and welcome to Multipolarity. I'm recording on Liberation Day today.

That is Wednesday the 2nd of April. Liberation is coming apparently later today when Trump announces more tariffs on mainly I think are related to cars in Europe and so on. I suppose the idea is that the American Republic is being liberated from the forces of globalism. Whether that is true or not remains to be seen. The tariffs may or may not work.

Ultimately, I don't think the viability of the Trump project and rethink more fundamentally their place in the world. But we're not here to talk about tariffs today, not directly anyway. We're here to talk about the fact that it is increasingly looking like the United States might be about to experience some sort of a stock market correction.

which could spread to other markets and become a financial crisis of some sort. That remains to be seen, but I think the evidence is now in that what we are witnessing is not just a few bad days trading, it is something fundamental.

and something quite dangerous for the American economy and actually really for the world economy, although the world economy is moving in different directions these days, so it's not as integrated as it was during the Asian tiger crisis of '97 or even during the global financial crisis of 2008.

So at the time of recording, the NASDAQ, that is the tech heavy index, that's the home of the Magnificent Seven or Mag Seven, as Wall Street wits like to call them after the firearm that's popularized in gangster movies in the early 1990s.

The Nasdaq is down 16% from its peak. It's December peak. It peaked in December. It's currently down 16% from that. A technical bear market is typically a 20% decline from peak, meaning that Nasdaq is now 4% off a bear market. Just to give people who don't follow markets closely some context, 4% is two bad trading days,

or one really bad trading day. So within a day or within two days of bad returns, the NASDAQ could enter a bear economy. And of course, as I said, today is Liberation Day, so...

I'm not going to make any predictions, but there's a fairly decent chance the markets will sell off, in which case we could be pretty close to a bear market in the United States, or at least in the NASDAQ. It hasn't spread to the S&P 500 yet, but the NASDAQ, as we'll talk about more in a moment, is the leading index. It's the one that's pulling the other indices along.

At the time of recording, gold is about $3,120 an ounce. For anyone that's my age or older, that is an absolutely insane price for gold. People were shocked back in the day when it crossed the $1,000 an ounce mark.

There's no indication that gold is going to stop rallying. It just keeps going up and up and up. And Wall Street banks just keep raising their expectations of future gold prices. We'll talk about that more in a moment. The blame is being assigned to tariffs, to Trump's trade policy.

But that's not actually true. I'll talk about the tariffs as an overarching narrative device in a moment. This is very familiar to seasoned market watchers, but it is not really due to tariffs. The deep causes are idiosyncratic.

in each company. There may be a global theme to these deep causes, but the deep causes themselves are logically distinct. I'll give two examples. Tesla is trading very badly. It's been a key stock in the NASDAQ index, in the American stock market indexes in general.

And Tesla is trading badly because it keeps missing its earnings. It's been missing its earnings since, I think, mid-2024. And the reason for this is, well, there's a few reasons, but the main reason is probably Chinese electronic vehicles, the success of the Chinese EV industry.

On the other hand, NVIDIA, that's the chip maker that everybody puts so much hope in and that the entire AI hype was surrounded in a sense. NVIDIA is down quite badly too as are related chip making companies and adjacent companies to NVIDIA. Well, NVIDIA has been disturbed as long-term listeners of the show know because of DeepSeek, because of this...

capacity for the Chinese to create these extremely impressive AI models. Now, there is a theme linking those two things. It's the rise of China, of course, Chinese EV market, deep seek, it's the rise of China that we're talking about. But they're logically distinct. They're not immediately related.

This goes very deep in American politics and I'll say something on the show that I haven't said before but it's been whispered about now for some time and we might as well talk about it. The Silicon Valley players have been rattled by the rise of China, by the rise of the electronic vehicles market that challenges Tesla. Tesla was supposed to be the American leader, the new American leader company that exported cars all over the world. We don't see

I'm probably dating myself here, but Ford Broncos in Europe. We don't see these big gas guzzlers, as they call them in America, in Europe. But we did see Teslas for a while. Teslas were quite popular. And this gave Americans hope that American industry could once again become innovative and world-leading, like it was in the 1950s, for example.

The Chinese developments in EV, which they produce these incredibly high quality EVs for a fraction of the cost that are better engineered than Tesla's and cheaper, has rattled Silicon Valley. It's rattled Elon Musk and his friends, the PayPal mafia, as they're called. DeepSeek has really rattled them. If the EV markets rattled them a little bit, DeepSeek really rattled them because Tesla...

at least in theory, could mimic what the German automotive manufacturers did and kind of compete or die with the Chinese or with the Japanese. That's what they used to do. So I think Musk had in mind maybe that Chinese tensions would ease. He obviously visited China, I think, last year.

And that Tesla and maybe some of the Chinese EV producers would start working together and there'd be government pressure to get them together. That may still happen, but there's at least a way forward on that. DeepSeek fundamentally attacked the root of the artificial intelligence driven Silicon Valley model as it's become in the past.

five to ten years and it did so because it just commoditized AI. It took away all fees, all the big fees, all the fat fees. It took away, well, this is open to debate, but I still believe it doesn't require nearly as many chips as were forecast, which calls into question NVIDIA's business model. And of course, NVIDIA is the world leader in these GPU chips. And again, that was supposedly a next world leading industry for the United States. It undermines a great deal of that.

Deep Seek has spooked the tech guys even more, but they were already pretty rattled. And in fact, this is why we're seeing the likes of Doge emerge and some other Silicon Valley guys trying to get in on the Washington DC game. It's partly ideological. I'm not downplaying it. The tech guys clearly are sick of the current regime in a sense, the late liberal collapsing regime in DC. They don't like it.

But it's partly business too. I think a lot of these guys see a future in running the US government more efficiently and channeling their business through that. It's not been widely talked about so far, but I think it'll become increasingly obvious as if we start to see a bear market in NASDAQ. As Warren Buffett said, when the tide goes out, we see who's swimming naked. And there may be quite a few people in Silicon Valley swimming naked. The smart ones may have already jumped ship.

and are working on retooling the American government, which may or may not be a good thing. We'll see. It's an open debate, but that is what's happening.

The tariffs themselves are being blamed for all this, but what I've just laid out is not a tariff story. It's a much bigger story than that. It's a story of innovation. It's a story of a loss of world leadership in some of the industries that America's tried to turn into their new world leaders in the past decade or two decades. That's a much bigger issue than a few tariffs slapped on the market by a Trump administration. The tariffs are what you might call a narrative device.

I used to work at a fairly well-known firm, well, at least in financial markets, it was quite well-known. Outside, it was a little bit more obscure. And at the head of that firm was one of the most famous investors in the United States, really. They invented quantitative finance and so on.

And he was my boss and he always told me that there are some conditions, there are certain conditions. He'd been watching markets since the 1960s or 1970s and there were certain conditions that needed to be in place for a bear market to take place.

many of which I've talked about, actual fundamental weaknesses in earnings, a fundamental change in a business model, stuff like that. But the thing that eventually drives the bear market is that a narrative coalesces around something that's quite simple to explain to people, something that's not too complex.

It's difficult to sit down with traders, for example, who usually just trade the market daily or whatever, or retail investors, people who buy stocks, maybe some of our listeners buy stocks. Even pension fund managers are more focused on kind of asset allocation, on how much they should have in equities versus how much they should have in stocks.

It's only really hardened equity analysts that would really listen to the discussion that I just had about Tesla and DeepSeek and all this. It seemed to be kind of a one corner of market analysis. And it's a bit like marketing. You can't really sell that to everybody in markets. It's just not a good coherent story.

It's too difficult for people to grasp. And so in order for a bear market to take hold, you typically need some sort of a simple narrative device. In 2008, it was very simple. It was the explosion of the banks. Everyone was watching banks explode. And it was a simple enough story. We saw a drawdown, of course, in 2020 due to the pandemic. Again, a very simple story. People would pass around case numbers and everything. People probably remember this.

2000 was a little bit more complicated and in fact it's not really clear that as coherent a narrative took hold. But the tariffs are turning into a narrative device that is justifying sell-offs. And so now you'll start to see sell-offs. Once the narrative device kicks in, while it may not be causative, it starts to correlate because people actually start selling down the market in response to news about those events, in this case tariffs.

Before going into what all this means, we should also turn to Europe. Europe's seen some very interesting developments, many of which we've talked about on the show. Of course, the unifying theme here is a remilitarization of Europe. The European leaders are panicked, they're freaking out, the Americans seem to be pulling away, the war in Ukraine seems to be lost.

Some of them say that Russia is going to take Ukraine first and then start taking Poland and Estonia and all this. How many of them believe that? I used to think not many. I used to think it was a cynical device to maintain control over the European populations through fear. And I think some people still exercise that. But we've certainly seen since Trump ruffled the feathers in Europe that more people actually believe this than you would think.

given the fact that these are leaders. These are apparently people who made it through meritocratic institutions and organizations and came out on top. And they believe things that the man in the street doesn't believe. Everybody knows it's ridiculous. But these people believe ridiculous things.

And it raises serious questions about the quality of the meritocracy in Europe, or if we even have a meritocracy. Perhaps we're dealing something more like an oligarchy with vast amounts of foreign influence pushed by organizations like USAID and so on to promote yes men in liberal suits, as it were.

I think there's a lot of truth to that. But Europe has talked itself into a frenzy. Some people believe it, some people are cynically using it. Certainly the people on the money side of the ledger are cynically using it. Nobody in financial markets thinks that Russia is going to invade Europe. If they did, they'd be bidding down the Polish stock market much in the same way as you saw the Ukrainian markets crash prior to the war. Nobody believes this stuff at all.

in markets, but market people are in the game of making money and they will make a cynical assessment of things. Right now, European stocks are rallying while American stocks fall, and this has many in Europe doing a sort of a victory dance. Oh look, the evil orange man Trump is destroying your prosperity.

Trump probably bears some responsibility for this because he's long tied his own competency to market moves. He's a money guy. He came of age in the roaring New York of the 1980s and 1990s, which was

you know, Wolf of Wall Street, New York, etc., etc. So Trump has always seen himself as kind of a savvy person adjacent to financial markets. Many of his companies are actual companies. They're not financial companies per se, but they've been involved in a lot of loans and so on. So I'd say Trump knows his way around Wall Street pretty well.

So he's portrayed his presidency as not being wholly dependent or determined by the impact on stock markets, but at least partly. The Europeans are very misguided to be promoting this. What's happened in Europe is actually very disturbing.

The remilitarization, as we've talked about on the show before, has encouraged European leaders to go on an enormous spending spree, or at least they're currently putting the money into bags in order to spend it in the near future. Not all of this spending is even going on military. In fact, much of it probably will not go on military because there are very limited constraints on

on what the Europeans can produce in their military industrial complex. We saw that during the Ukraine war. They couldn't produce enough shells, they couldn't produce enough tanks. There is no reason to think that just because the demand is now coming from Europe directly, rather than from Europe and then being passed on to Ukraine, that the productive capacity will magically appear. Why this isn't being explained,

policymakers in Europe by economists? I don't know. These are very, very simple principles. Even somebody with no training in economics can just follow the news cycle and ask basic questions. Well, if we couldn't get enough tanks and shells for Ukraine, why can we get them for Europe? Same problem holds in the weapons import market. Even if Europe did import these weapons

arms and they're saying that they won't actually that's probably wise because massively blowing out armaments imports would be a terrible idea both militarily and economically where would they import them from well there's only a few places really south korea the united states i mean maybe britain but britain's military industrial complex is pretty shabby these days um although they do occasionally sell things uh to some people abroad that will probably diminish after the ukraine war

Those are the same import partners that were being begged for weapons for Ukraine. So once again, the entire military industrial complex at the margin is highly constrained. And so much of this European spending is going into other projects. It looks like they're going to earmark a bunch of other projects and call them dual-use military. So they'll build something

let's hope it's a highway in Germany. It might be a bunch of solar panels that don't work or something like that. And then they'll say it's dual use. For example, the highway, well, we'll need the highway if we ever need to supply the eastern front of Germany or something like that. Or the solar panels, they'll say, well, we need energy security. It's adjacent to Germany.

X, Y and Z. This is classic grift. You get a narrative going about something, in this case war, military, etc., etc., and everyone redefines their own little project as fitting in with the overarching project. We've talked about this in the show. We've talked about how much damage this is going to do in terms of credibility for especially the German government, but certainly the EU governments overall and the EU bureaucracy in particular.

The stocks are rallying on the back of this for two reasons. One of them, I wouldn't say reasonable, but at least has some argument behind it. And the other is actually quite nefarious. The reason, the relatively rational reason is that stimulus is stimulus. This will produce growth of a sort, at least nominal growth.

it may not produce much real growth because it might cause inflation which we'll talk about in a moment but it will at least create some nominal growth if you spend lots of money that money circulates that's gdp growth at least nominal gdp growth and nominal even nominal gdp growth even just nominal gdp growth inflationary gdp growth with not much reality behind it is pretty good for equities it's not good for bonds we'll talk about that in a moment but it's pretty good for equities

So the markets are rallying on the back of that. But this is classic money printer go brr, as the meme goes. That is exactly what this is. The more nefarious aspect of it is that there seems to be a concerted effort, and I mean a concerted effort, on the part of ratings agencies and investment banks, at least those adjacent to Europe or with a large footprint in Europe or with a large amount of European employees at them.

And they are currently putting out reports saying that this plan is good for the European economy. These reports are fake. I don't know if the people who write them believe them. I don't know if they've had their brains baked by war propaganda. I do not know because I don't know all these people. I haven't met them. I don't know what motivates them. But they're all coming out and saying it at the same time. And what they're saying is absurd on the face of it. This is a really stupid stimulus program. It's really poorly designed.

It's poorly designed on both the spending side because it's not calibrated to the real economy. It's just splurging. It's also really poorly designed on the production side we've just talked about. There are supply constraints. This is going to be loads of boondoggles and whatever.

No one can rationally argue against that. So I can only assume that the whistle has gone out, the call has gone out from Brussels to various stakeholders, as they call them, private sector institutions, corporates and so on, and they've been told, get in line. Do not publish negative stories about this spending program. It is good for the EU economy.

Well, that's great. But propaganda, which we've had much of in Europe and the West over the past five years, does not recreate reality. It can shape people's perceptions for a little while, but it's just covering over rot, it's covering over corruption, it's covering over decline. And that's exactly what's going on here.

Bonds in Europe are selling off. Equities are rallying, but bonds are selling off. The bond market is saying we don't really like this spending program. They are indicating that it's going to cause higher government borrowing, which of course it will, and possibly inflation.

So the bond market is signaling this is bad for the economy. The equities markets are saying we love a bit of inflation and these people are being trotted out in various institutions to pretend that the bond market isn't selling off or to downplay it. So it's really nefarious. Back to the U.S. That was just a little segue on Europe just in case people have seen this narrative that Europe's going up while the U.S. is going down.

The situation in the US economy is very, very fragile at the moment.

Biden ran the economy on what I'd call IRA zombie stimulus for years. He pumped a bunch of money in, very similar to what the Europeans are doing, through the Inflation Reduction Act. It was mainly a giant grift. It was a giveaway to his donors, to people who used to work in the Democratic Party, to friends and influencers in the Green Movement. We haven't seen much come from it. Where are all the factories and chip semi-fabs and all this that were supposed to be built?

We don't see them anywhere. Well, it's been a few years. Why haven't we seen them yet? Because the IRA was mainly a giant grift, much more of a giant grift than the Obama-era American Recovery and Reinvestment Act, which conservatives in America didn't like, but which was actually...

For the most part, not exclusively, but for the most part, a real Keynesian spending package that had goals, that was timed properly for an economic downturn, that was costed properly, relatively speaking, for a Keynesian policy. All of these things. The Biden inflation reduction was none of that. It was just fraud from top to bottom, grift from top to bottom.

So the economy was not doing well underneath that. Biden mainly got ousted due to the economy. Even though the GDP numbers were saying it was growing, consumer surveys, political surveys and so on were showing clearly that people did not like the economy and that they wanted Trump to get in and fix the economy.

And the IRA papered over that by creating artificial sort of fraud growth, in a sense, grift growth, call it what you want. And that propped up the GDP numbers, but it didn't fool anyone. And that's why Biden didn't get reelected or why Kamala didn't get elected, I should say. And the reality is all the underlying fragilities are still there. I saw a chart recently that showed that mortgage delinquencies, that is people behind on their mortgage repayments,

is higher now in the United States than it was at the height of the 2008-2009 mortgage crisis. This is the problem that the Trump administration is playing a very dangerous geopolitical game at a time when the markets are soft, at a time when the markets are selling off, when equities are selling off and so on. And this is a recipe for

a disaster, to be frank. This could go in any number of different directions, but it's much more serious than the Trump administration is taking it currently. I don't think that's fully their fault. There's a lot of excitement baked in. There's a lot of excitement built in to the process in D.C. People kind of feel like there's a revolution going on there. And if you wheel out the men in gray suits in the midst of kind of the Trump revolution, people are going to sniff at them

I'm sure Scott Best in the Treasury is having precisely that problem. That's where we are. It'll be interesting to see what happens in the next week or two with the Liberation Day and so on. Certainly watch out for discussions of NASDAQ going into a technical bear market in the next few weeks and watch how it impacts other markets, especially bond markets.

I thought I would discuss a subject that many Americans, and I think some Britons as well, will be interested in. What on earth is happening in Europe? In fact, I think some Europeans might be interested in that too, and we do have some European listeners here on Multipolarity. What I intend to do to answer this question about what is happening in Europe is

is to share a discussion on geopolitics I hosted on Spaces on ex-former, formerly Twitter. And this discussion terrified me to the extent that I could really barely think of anything else for quite a few days after I had it.

The discussion I had was with Anasar Farooqi, the founder and CEO of a hedge fund in the US, but better known to those interested in geopolitics as PolicyTensor, as we British people would say, which is a pseudonym under which Anasar writes really quite brilliantly about

and in a very learned and erudite manner on both X and Substack on the subject of grand strategy and geopolitics. Now, Policy Tensor argues that the US is going to leave Europe, and he contends that that's not so much due to Trump's personal preferences, but actually is a recognition of geostrategic reality. China is now...

Far too powerful for the u.s. To control or to manage unless it's focused entirely on China so the u.s. Can't afford anymore to hold the line in the Middle East and in Europe and in Asia It must focus on the key theater and the key theater is clearly Asia because that's where the biggest economy is and it's where the only genuine peer threat is

to the US's. Now, this is an idea that I think will be well known to any realists who are listening to this now, and any of those who are aware of the work or have heard of the work of John Mearsheimer, or even, for instance, Elbridge Colby, who is now part of the Trump administration within the US State Department, within the US Department of Defense, excuse me.

Now, many Americans and, well, many of our listeners, in fact, will have seen that Trump's decision to really shift in quite an abrupt manner the responsibility of Europe's defense onto Europe and his sending of J.D. Vance across to criticize Europe's record on matters such as free speech

Really, his implied intention, I believe, to completely draw down from Europe and leave Europe to deal with its own defense has caused huge amounts of consternation in the European Union. I think many of you will have seen at the Munich Security Conference, in fact, there was weeping, literal weeping, grown men crying,

because of what had happened, because of the end of this transatlantic, Atlanticist relationship. And since then, there's been a nonstop, well, really a tsunami of articles decrying the U.S., decrying Trump for his behavior. There's genuine resentment and anger

in Europe about this. And there's lots of speculation on both sides of the Atlantic about how it's going to work, what's going to do, the extent of the breakup, how much America's going to leave. But what's not being discussed is what Europe will do next, what Europe will do if and when the United States leaves it. Now, what PolicyTensor argued to me in our discussion on X was

was that what actually comes next is a unified EU military under centralised, in Brussels one assumes, not national command. Now there are very good geostrategic reasons for the EU to want to do this. The first is that even ignoring the supposed threat of Russia, and we'll talk about that more a little bit later in this discussion I think, if I've got time,

If individual states within the European Union try to rearm without any kind of cooperation, without a unified program and a unified structure within which to rearm, I think it's possible, maybe even likely, that security competition will reignite within Europe. If you think about it, there's no way that a country like Germany could embark on creating, say, a combined arms military of...

25 divisions without absolutely terrifying its neighbors it just wouldn't happen and the same goes for Poland and France now the polls might say in such a scenario while we're building these 20 divisions these 20 tank divisions really to defend ourselves from Russia but that won't stop Poland's neighboring countries for being concerned about this and having to make plans and having to take postures and

to defend against the risk of Poland in that scenario. And that in itself would kickstart the cycle of security competition, which twice in the first part of the 20th century led to absolute catastrophe. Now, in fact, that's why the EU and NATO were created in the first place. It wasn't just to build a single powerful economic bloc.

in the case of the EU, or to counter the Russian military in the case of NATO. It was actually a kind of an elegant and very clever solution to the problem of European security competition, which as I say, caused ultimately two world wars that led to a catastrophe on a scale that we of this generation probably cannot even begin to comprehend. So without the US and Europe,

And without a replacement for the US and with countries panicked about what they see as the threat from Russia and panicked about trying to replace the US in individual means, it's clear that the conditions for security competition would re-emerge. So that's the first strategic reason that the EU will want to build a unified military force.

The second strategic reason is that absent a unified force, absent a kind of federalized Europe, maybe federalized through the stalking horse of a unified military force in a way that the single currency, the euro, didn't manage to be a stalking horse for federalization. Without that, Europe would become...

a playing field for outside powers, a bit like the Middle East has been. It might not be as bad as that. It might not lead to the kind of catastrophe that has been. But it would be a wealthy, large economy with sought-after assets. I mean, in Europe's case, that would be like a massive consumer market and a producer of great engineered products, for example, rather than hydrocarbons in the Middle East.

but also an area of great geostrategic importance and Individual nations would be simply too weak to resist outside influence and they could be played off each other so the so so so Europe absent such a military force and absent the United States security blanket Would be open to becoming a playing field for outside great powers such as China such as the United States and in fact

it's probably the case that even the flanking powers, Russia, Turkey, and the United Kingdom, would be able to some degree, and with some skill, to manipulate individual European nations in their own interest.

and in competition with other great powers and flanking powers playing within Europe. So I think it's clear, or it should be clear, that there are actually very important strategic imperatives behind such a move towards a unified European military, a unified EU military, under centralized EU control rather than national control.

Now, there are also individual reasons, more esoteric reasons for this. The first, I think, it's reasonable to say is the bitterness at having been abandoned by the US in a very unceremonious way and by that unconscionable, indecorous Mr. Trump who is so disliked by the effete sophisticates of the European establishment that

And to be dumped just as Europe is at its weakest state with its deindustrialization-caused

in part by its own sanctions on Russia, and also having sent almost all of its heavy weaponry to Ukraine. I think I'm right in saying that Britain has only got about 10 155-millimeter artillery pieces left at the moment. I might be wrong with that number, but it's certainly very low, and that gives you an idea of the powerless state of the European arsenal after sending so much to Ukraine.

So, I think, you know, one reason they might want to move forward with this is the kind of, you know, the bitterness of the jilted lover who starts going to the gym and working out and losing weight and learning how to be charming. It's the bitterness of being jilted by the US and the desire to say, okay, if that's what you want, you'll see.

Now, the second reason, and I think bigger than that probably, because, you know, ultimately a great many EU elites, as we spoke about on this show many times, are driven by emotion.

And something like an adolescent mindset which drifts between, or swings, I should say, swings wildly between hubris and despair. But I think that's not necessarily as important as the second more esoteric reason behind this. And that's that the aim of the European Union has always been ever closer to union.

It was founded really as an economic zone, but the economic zone was meant to be the driver towards something like a federalized Europe, a United States of Europe. And in fact, if you look at Jean Monnet, perhaps the man more than any other who might be considered the European Union's founding father,

He was actually well known and deliberately kept solutions, and if you could see me making those kind of inverted air quotes here, solutions in his pocket essentially, that happened to involve greater European integration and more sovereignty being passed to Brussels. And he had these solutions ready at hand for whenever a crisis hit.

So that way he could give, you know, your average feckless politician an easy way out, a ready-made way out, something that could just say, okay, this solves the problem. And it happened to be one that best suited the EU's ends. And it's always been understood that the EU wouldn't develop slowly into a federal state, but it would move there in a series of lurches that would happen, you know, as a result of crises, right?

Now, we saw that in a much smaller way with the COVID vaccine task force, where the EU accrued power from sovereign nations that it's now not going to give away, so that it could do a kind of a joint purchase of vaccines and thereby, in theory, get better deals from the pharma companies. We also saw it after the global financial crisis, and especially the 2009 sovereign debt crisis in Europe,

when the EU accrued fiscal policy oversight powers and actually very serious and powerful tools to essentially impose their will on sovereign member nations who were getting out of line on fiscal policy. And obviously setting a budget is one of the key parts of sovereignty. It's one of the key parts of being a nation is the ability to

tax and spend and borrow as you see fit. But the EU accrued at the very least oversight power. It narrowed the window, uh, within which sovereign nations could operate in terms of fiscal policy. So those are two recent examples. And obviously a, uh, European military would be a huge step forward in that direction. I mean, you know, think about it, think about it. Uh,

I mean, ultimately, you know, Europe has its own currency. It has fiscal oversight over the states. It has something like it has a flag. It has national anthem. It has a parliament. It has a single central bank that sets monetary policy. It has an executive and in theory a president. It has some of its own embassies. If it had its own military as well, I mean, what is the line between

being a state, like a nation state, and being some kind of, I don't know, confederation or like economic bloc. Surely it's starting to cross from there. And I think that if we are to say the European Union lurches forward within crises, or the process of federalization, the process of ever closer union lurches forward within crises,

The crises of having sent all of your arms to Ukraine and being left bare and having a Russian military that's far more powerful now than it was three years ago in relation to Europe and is now rather unhappy with Europe's behavior. While the U.S. is in the process of leaving, the U.S. is in the process of removing the safety blanket. I mean, what is a greater crisis than that?

So it's entirely possible to imagine the Federalists within the Eurocrats

really trying to push this forward. So we have esoteric reasons, you know, the desire for ever closer union, the bitterness that the US has left and the desire to kind of show them Yankees. But we have the overarching strategic imperatives to avoid European security competition and avoid becoming a playing field upon which the machinations of outside powers

play out so is there any sign that this is happening well yes actually i mean there's a steady stream of articles about the eu working very hard on a plan to deal with its own defense and security you know there's talks of unified purchasers you know there's talks of a single european defense plan the germans are going to spend a lot of money apparently on defense

Macron has even talked about extending the French nuclear umbrella right out into the rest of Europe, which obviously would be crucial, absolutely crucial, if Europe was to be a great power. There are reasons to think that it won't happen, though. I mean, there's the usual bureaucratic constipation. There's the incompetence of this EU elite, and they are largely incompetent.

There's the national capitals, you know, Paris and Berlin and Budapest and Bratislava, who jealously guard their national sovereignty. There's also national parliaments where you might have blocking coalitions because of individual constituent interests, which is way beyond the interest of the kind of the high mandarins of the European Union. And then there's the usual squabbles about who pays for what and who gets which pork.

The frugal northern nations worrying that the profligate Latinos will use this all as an excuse to get their hands on a debt-fueled EU slush fund paid for on the never-never. But let's say it did happen. Let's say it did happen. I'm not sure it's likely to happen.

But let's imagine that it did. Let's imagine that the EU did develop a unified military command, perhaps small at first, but increasingly powerful, and with its own funding outside national budgets and its own command and control. What would happen then? Has anyone actually thought of that? I don't think so. And thinking about geostrategy and thinking about national strategy,

is thinking about risks and this is now a risk I think given the strategic imperatives are there and the environment is there to do it. Now as a Briton I find this absolutely terrifying. I mean it's been long standing and when I say long standing I mean for centuries British foreign policy

to keep Europe divided, to keep a kind of attention, to keep a balance of power there, on the understanding that if one unified force ever controlled the full resources of Europe, Britain's defensive position would move from impregnable to untenable. And this is exactly what that would represent.

I think it's even worse than that, though. It could even lead to the breakup of the United Kingdom because the attraction of the EU actually getting its act together and moving toward federalization and the excitement and just the dynamism in what appears to be an increasingly sclerotic continent of that site would encourage perhaps the Scots, certainly the Scots, perhaps the Welsh, but certainly the Scots who are already

bordering on secession to indeed secede so they could join. And of course, the EU would have a strategic...

incentive to encourage that because it would strategically hobble England, which is a potential flanking power and a potential troublemaker, as it has traditionally been in Europe, while it would also give them control of the eastern flank of the Greenland-Iceland-UK gap, the GI-UK gap, which is the northern entry point to the Atlantic Ocean. And any European state would wish to control the Atlantic approaches to Europe just as surely, I mean, just as much as the U.S.,

tries to control the sea lanes of the U.S. toward the U.S. eastern seaboard. So that would leave Britain with two choices, essentially. It could hitch its wagon even more closely to the U.S. But, but, but, in an environment now where the U.S. is increasingly going its own way, increasingly setting policies in its own national interest, and who is in the process of moving to take over China,

So hitching our wagon as Britons to the United States would have kind of less potential benefits and much more potential risk. The other option is to actually join this European defense, this unified EU military structure.

which rather goes against the logic of Brexit, doesn't it? It's a kind of, well, we couldn't beat them, so we're going to have to join them. And it would mean the functional end of Britain. It would mean the end of a thousand years of history, as was feared by Hugh Gaitskell when he said that phrase in the 1950s when Britain was seeking to join the European coal and steel community.

So for Britain, and as I say, this is exactly what kept me awake for three nights. I couldn't stop thinking about it. It would be an awful geostrategic position. And I really think that we ought to be thinking about what to do in such a scenario. The other outcome, of course, would be global. And clearly, such a Europe would instantly become a great power. It would instantly become one of the poles in a multipolar world.

The military would almost certainly become a great kind of stalking horse to accrue the kind of administrative and tax-raising veins and sinews and muscles that all states need. And ultimately, the United States of Europe, almost as powerful as the US and China, would be on the cards, wouldn't it? So Europe would have the strategic autonomy that many Europeans have always wanted.

Europe would become federalized in the way that EU elites always wanted. And Europe would become a pole in a multipolar world. Europe would be a great power and ultimately over time a peer competitor for China and the United States. But here's a question. What would Europe do with that strategic autonomy? What would it do with that power? And I think here there's actually cause for a bit of worry.

It's not just the unification itself that matters or the means by which an entity is unified. I think what also matters is the animating imperative, the animating force that goes behind that unification process. And just to illustrate this, just to kind of explain what I mean, imagine how different Germany would have been

if it had unified under Austria, decadent, civilized, utterly impotent, utterly bureaucratic, sclerotic Austria, rather than Prussia, which was potent and sinewy and Spartan and militaristic and ruthless and looked eastward. Those two Germanys unifying under different German pre-unification powers

would have looked entirely different. And I therefore think that it's important to consider if Europe is lurching towards a sudden, is going to enter a sudden lurch towards greater unification or final unification in fact, it's important to think of what the animating force is. And unfortunately here, I think the animating force is the Russian threat. It's an external threat.

There's just a constant stream of hysteria that comes out in the press about Russia, Russia, Russia. Constantly, every day, scores of articles constantly about the Russia threat in kind of scare quotes. I mean, there was even the new German Chancellor Friedrich Merz went to a primary school with little kids who looked as if they were not many years out of kindergarten.

ranting about how Germany together and united was going to defeat Mr. Putin and these poor kids looking like increasingly nervous and Utterly baffled by what was going on. I mean, this is not normal There's a lot of hysteria at the moment you have Kaya callas who? Is the worst of them all as the most senior? EU policy bureaucrat it's it's a it's a real issue and I

I think combined with the resentment toward the Americans at the moment, this is a really dark narrative to kind of stoke, to fuel a unification drive. It's a foundation on a fear of outsiders, on the external threat of

rather than a hopeful dream or rather than a kind of a unified polity coming together in hope and optimism or through shared struggle, for example, or great unified victory.

it's the, it's that kind of fear of the ex, you know, the, the, the outsider, the, the great external threat that one sees in places like Iran, when they talk about the great Satan, it's what once on the Soviet union, when they talked about capitalist imperialists who were always, always looking to take over, take over the Soviet union and enslave its people for the

for the capitalist pig dogs. It's the sort of thing that you saw in Nazi Germany. You know, they talked about the international jury, you know, this external threat that was going to prey on the Russian Volk, okay? And I find it very dark indeed that Europe is going down that road, especially at the same time when we're seeing clear evidence of democratic backsliding. You know, we've recently had the Marine Le Pen case,

We had the cancellation of elections in Romania when things went wrong. There were much earlier cases as well. And we're also seeing a sweeping crackdown on free speech. So I think if Europe enters a period of unification for such dark reasons, it would be a very different place

Indeed, than it is now. I mean, such a Europe, it was federalized. It was a great power in its own right. It had a unified military that was commensurate with its economic size and power. But the unifying force was the external threat of Russia and a historic resentment of the U.S.,

And it was a place where free speech and politics and democracy were very tightly controlled. Well, I think that looks like a very different Europe and a much more ominous Europe to that which it is now. So, I mean, what are the chances of this happening? Well, ever closer union has always resisted, as I said earlier. There are always kind of really hard-fought negotiations over such things.

It never comes out in its purest form. It's always some messy fudge or compromise. So I think the chances are that Europe won't pull it off. But as I said earlier, strategic thinking means thinking about risk. And this risk, as the world is in flux, as it is at the moment, this is a risk that has emerged and it needs to be thought about. ♪

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