One of the major developments in modern warfare has been the emergence of drones as a potent military tool, which has changed modern battlefields. Drones provide a much cheaper way to conduct reconnaissance, and attack targets, at a large scale. One of the most recognisable faces of this shift has been the Turkish Bayraktar TB2 drone. It has also helped make Turkey a significant exporter of drones.

Baykar, the firm that makes the TB2, will now be making more significant inroads into Europe. Yesterday, it agreed on a joint venture with the Italian defence firm Leonardo. The two companies will produce drones for the European market together in Italy. They estimate that this market will be worth about $100bn over the course of a decade.

The Leonardo-Baykar tie-up points to another geostrategic question for Europe as it tries to figure out how to do without the US. There is a lot of talk of, and engagement with, the UK as a key European non-EU ally. But Turkey will also be important to any future European security architecture. Aside from the drones, and other aspects of the country’s defence industry, it currently has Nato’s second-largest army. Not to mention its key geographic position, controlling the Bosphorus and straddling both the Black Sea and Mediterranean.

When dealing with Russia, Turkey has often taken a different approach to its western neighbours. It has used a combination of dialogue and confrontation to manage its relationship with Russia where the two have overlapping interests, both in the Caucuses and in Syria. Now, however, Turkey seems genuinely alarmed at Russia’s sphere of influence growing larger if it ultimately wins in Ukraine. Recep Tayyip Erdogan has put his backing behind Ukraine, and has said that the country’s territorial integrity is paramount.

This alignment might make it easier for Turkey and Europe to work more closely together, either formally or through one-offs like the Leonardo-Baykar joint venture. But there are various other geopolitical barriers to further cooperation too. The most significant is Turkey’s strained relationship with Greece and Cyprus. It still has extant maritime territorial disputes with both, and the frozen conflict that has split Cyprus in two is further from being resolved than ever. Just last year, Erdogan once again dismissed the idea of Cyprus being reunified.

Then there is Turkey’s involvement elsewhere, most notably in Syria. At the moment, its presence there is arguably beneficial to the EU’s own interests. The new Turkey-backed government provides more stability, whilst potentially facilitating the return of Syrian refugees to the country. But this may not always necessarily be the case. Turkey’s backing for Azerbaijan in its various wars with Armenia has also proven politically contentious in some European countries.

As political and economic analysts, we have had our fair share of misjudgements. Forecasting is difficult, especially of the future, as Niels Bohr once said. The sentence is not as trivial as it sounds. It is not easy at all to forecast the position of the current economy – or the position of an electron for that matter. And the economic models used by central banks and market participants often cannot even forecast the past.

The best we can do under the circumstances is remove bias and noise. With Donald Trump this is very difficult. But it is the only way to remain sane. People have very strong views about Trump, and there is a lot of noise, much of it generated by himself and his administration. For example, on tariffs. He threatens a tariff. He announces a tariff. He suspends it pending negotiations. The deadline expires, and the tariffs are back. His commerce secretary then goes on TV to say that there will probably be a friendly agreement. Then Trump tells Congress to indicate that there will not. He says he had a friendly conversation with Justin Trudeau. We have to be careful with such words. A grin is not a smile. A friendly conversation with Trump is different from the friendly conversations we have with our friends.

In a situation like this, it is best to rely on revealed, as opposed to stated preference. We know, for a fact, that the reciprocal tariffs will come. Trading partners should take into account when formulating their responses. The US will auto-respond to anything we throw at them. If you run a large and persistent trade surplus against the US, like the EU does, you will run out of things to tariff before they do. Don’t do it.

On cars, the revealed preference is that Trump cares about sudden supply chain disruptions, but he does not respect supply chain arrangements. In his call with the US auto makers, which included Stellantis due its ownership of Chrysler, he agreed to a one-month reprieve, so that they could start re-organising their cross-border supply arrangements. Some components criss-cross the US-Canada and US-Mexico borders several times. A month is not a lot of time to unpick this, but enough to get the ball rolling and to start making immediate changes to a few highly exposed flows.

A tariff does not work like VAT. It’s 25% flat on everything that crosses the border. The biggest victims of this tariff are not the Europeans or Asians who export finished goods to the US, but those with highly integrated supply chains inside of the USMCA area.

The revealed preference of month one of Trump's second term is that they are much more strategic than Trump'm first term, and more strategic than we are. Trump withdrew intelligence services to Ukraine so that we cannot say No to a peace deal. Yesterday we heard it from the Danish prime minister - that victory was more important than peace. The more we say this, the worse it gets for us. We Europeans are used to state positions of principle, but we are not well versed in the art of strategic thinking. Strategic thinking is not a quality that is rewarded in Europe.

The same goes for trade policy. We take no views on the economic consequences of Donald Trump for the US, but we do believe that they will be negative for us. We are not only dependent on the US for security, but also as an absorber of our savings and export surpluses. This is a problem we are not going to fix through more public spending. It would require deep structural reforms to the way the economy is working.

The best way to respond to Trump is to do the exact opposite of what Justin Trudeau just did, and what the European Commission is about to do. Don’t engage with the guy on his terms. Don’t hit back. Neither the EU nor Canada will win a trade war with the US. They will end up blinking first, just as they are now starting to blink in the stand off over Ukraine. We can hyperventilate as much as we like about the Trump-Zelensky standoff. But we are clearly in the weaker position – not because of Trump but because of our own complacency. The solution is to fix our underlying dependency problems. 

Arab League countries endorsed the Egyptian plan to rebuild Gaza keeping the Palestinians on site governed under a temporary technocratic Palestinian government. This is their counterproposal to Donald Trump’s plan for a US owned and build Riviera-style Gaza, where reconstruction involves moving Palestinians out to other countries.

The White House was quick to dismiss the Arab League proposal as not addressing the realities of an uninhabitable Gaza where people cannot humanely live. Does Trump’s plan sound more realistic and humane given that most Palestinians are determined to stay?

The Arab League proposal sets out a reconstruction plan over a five-year period of clearing the site and rebuilding housing and infrastructure as well as recovering agricultural land and industrial facilities, according to details outlined in The National News. The initial cost estimate is $53bn.

The plan would be accompanied by a political path towards a two-state solution. The Palestinian representation is to be unified under the Palestine Liberation Organisation, an umbrella group where the Palestinian Authority is dominant and that excludes Hamas.

So now we have two plans for the future Gaza and still no strategy of how to even get there. The US administration leaves it largely to Israel to decide what to do about the current ceasefire deal, whether they want to resume the war or not. Reconstruction is still far away.

The two plans for a future Gaza are incompatible on land ownership, displacement, and Palestinian statehood. The Trump administration threatened under their plan that they would withhold aid towards Jordan and Egypt if they refuse to accept Palestinians on their territory. But history have taught neighbouring countries that displacing Palestinians only increases security risks, rather than mitigating them.

The two plans also highlight the old divide over the two-state solution. Saudi Arabia insisted already before this plan there would be no normalisation with Israel without a path towards a two-state solution. Its position had been much softer when Trump negotiated the Abraham accords during his first term. But the stakes for Arab nations in the region has changed since the war that followed the 7 October attack. And so did they change for Israel. Netanyahu sees a two-state solution as a concession to Hamas and thus a threat to its own existence. Without a credible strategy to address both security concerns, there will not be solution any time soon.

From a US perspective, the Middle East plans are also fading next to the Ukraine/Russia efforts, where Trump does have a strategy that seems to be working out for him. The Middle East is much more complicated. It hardly featured in Trump’s speech to Congress yesterday despite some of the hostages and their families present.

A disinterested Trump might turn his attention away towards something more rewarding for him and the US. Would Trump drop the ball and leave the decisions all to Israel? Not quite. There are also various media reports that Trump had asked Russia to mediate between the US and Iran. Trump may just play it on a different plane rather than getting involved into the details on the ground. By connecting the two conflicts with each other he may even get out some more leverage in the region.

Donald Trump’s coming tariffs in April might spell disaster for Europe’s car industry. In the meantime, they have gotten a sweetener from the European Commission. It recently outlined its auto industry proposals. These include an extension of the compliance period for new emissions rules that were supposed to come into place this year.

Now car companies will be able to show compliance over the course of three years, rather than just this year. Another significant change was moving a planned review of EU car emissions rules from next year to this year. This, we think, could be a precursor to significantly changing the 2035 internal combustion engine ban, something that has already been under discussion.

It might be the case that this ends up including other options, like plug-in hybrid cars. Some European carmakers are already adjusting their own strategies to incorporate fewer all-electric cars and more plug-in hybrids. These can run electric-only, but use an internal combustion engine to extend their ranges.

While we can see why the Commission has proposed this, there are some downsides. The most obvious is moral hazard. Companies had some time to comply with this, and there are some all-electric carmakers active in Europe. They could have arranged emissions pooling, and in some cases did, with these carmakers to try and avoid the fines. Doing this disadvantages the all-electric players, who did prepare, at the expense of those who didn’t.

It also makes one wonder what the point of the targets really are. If the industry, thanks to its importance to the European economy, can basically put pressure on the Commission to u-turn via the member states, where is the incentive to follow them? Our impression is that the auto industry is now, at least politically, too big to fail, and that any targets or materially serious constraints on it should be taken with a pinch of salt.

Speaking of too big to fail, this also doesn’t solve the most serious problem the industry has. It is being outcompeted, mainly by Chinese automakers, who can bring often better and cheaper electric cars and plug-in hybrids to the market. Then the US is also putting tariffs on us at the same time. Neither is something we have much control over at the moment, and there are negatives to putting up our own tariff walls.

When any industry is too big to fail, the answer is not to feed it. Instead, it is diversification. If European politicians are scared of the car industry going under, they should ask themselves why, and try to find a long-term solution. Instead, we have more can-kicking.

This is the disruptive time where powers are realigning their spheres of influence. Not only Russia, China and the US are exerting influence on other countries and continents. Turkey too, is enlarging its own sphere in the Middle East as the now de facto protector of Syria. 

Turkey is following through on a long-term strategic plan. The historic announcement of Abdullah Ocalan, the leader of the PKK, the Kurdish Workers party, that the movement he leads is to lay down its arms and disband could have dramatic consequences to the balance of power in Syria and the regional role Turkey is playing. It could facilitate the withdrawal of US troops from Syria and challenge Israel’s presence in southern Syria. With the regional developments since Hamas's 7 October attacks, Turkey and the Kurds have a greater interest in ending their decades-old feud that has costed tens of thousands of lives since the 1980s. Still, the Kurds in Iraq and Syria have yet to follow the call. 

The PKK’s main headquarter in Iraq only partially endorsed Ocalan’s request, the cease-fire. Talks are now continuing for an eventual disarmament and disbandment of what the US and the EU consider a terrorist organisation. If Erdogan achieves this conciliation with the PKK, it would give him leverage in the US and in Europe, and change the political dynamics in Syria. 

The Kurds in Syria consider themselves not bound by Ocalan’s statement for now and put forward their demands to Damascus that would weaken central governance. But Syrian Kurds depend on US backing for their equipment. This is no longer guaranteed with Donald Trump in the White House and Congress on his side. If Erdogan manages to take the PKK conflict off the table and convince Trump that they can look after Isis prisoners in Syria themselves, the US may see no reason to stay. The Kurds in Syria may then have no choice but to integrate into a Syria governed by Ahmed Hussein Al Sharaa, and thus indirectly by Turkey. Once the Kurds are integrated militarily into the Syrian army and loosen their claims on becoming an independent region, Turkey could withdraw its troops from the Kurdish-controlled north of the country.

In the south, Israel is occupying land, and sees itself as the protector of the Druze communities. But their calculations are much more tactical, and the opposite of those in Turkey, writes Zvi Bar’el in Haaretz. Israel has an interest in a weak government in Damascus, and lobbies the US administration for Russia to keep its bases and to mitigate Turkey’s influence in Syria that it considers a threat to its own security. But even if Russia were to stay, it will be limited in operation and its presence is unlikely to stop Turkey’s influence over Syria. Some suggest that Syrian airspace, which was open to Israel based on coordination with Russia, will close up if Turkey replaces Russia as the air defence force protecting the new regime in Syria. Israel may then come under pressure to leave. A lot depends now on how the Trump administration will play this card.

Donald Trump’s energy policy is, to put it politely, a bit quixotic. On the one hand, he very clearly wants to bring oil prices down, and therefore petrol prices for American consumers. On the other, he is virtually destroying the US’s relationship with its largest foreign source of oil, Canada, and engaging in another round of sanctions whack-a-mole.

The Trump administration has kept sanctions on Russia’s oil industry from the Biden administration in place. It also recently issued new sanctions against Iran’s oil and gas sector, after soft-pedalling from the Biden administration helped lead to a material increase in Iranian oil output. Now, it is also coming for Venezuela.

Trump recently cancelled a deal that allowed Chevron to operate a joint venture in the country with PDVSA, the Venezuelan state oil company, and export that oil to the US. Chevron is currently responsible for exporting more than 25% of Venezuela’s oil output, or about 240,000 barrels per day. Without Chevron’s involvement, PDVSA would not be able to export to the US.

The first thing this could do is cause some practical difficulties for American refiners, especially in conjunction with the Canada issues. Both countries are sources of heavier-grade crude oil, as opposed to the typically lighter-grade crude that American shale producers pump out. Another source for this oil would be Saudi Arabia, handing them leverage that successive American governments have sought to reduce in the past.

Trump can try and convince Saudi Arabia to pump more, but why would it? Opec, led by Saudi efforts, has been trying, and not really succeeding, to boost oil prices at the expense of market share with a series of output cuts. More sanctions, if they do reduce the targets’ oil output, basically does Opec’s work for it.

Beyond that, there’s the fact that when you’re still the world’s largest oil consumer, it’s hard to sanction everyone. The US’s dependencies have been reduced by domestic production. But it’s still, at the end of the day, a global market. We could be in a situation where the US is then simultaneously pressuring Russia, Iran, and Venezuela at the same time. Is this really sustainable?

One might think the first sanctions to go would be the ones on Russia. But that would complicate things if Trump cannot, in fact, get a quick peace deal in Ukraine. Without the oil sanctions, he would lose an important source of leverage on the Russian government. It’s pretty clear now that Ukraine will just have to accept basically any deal in front of it. This is not necessarily the case for Russia. If the US isn’t as committed to supporting Ukraine militarily, and Russia can get its most valuable export out relatively unimpeded, where is their incentive to stop fighting?  

Every day a new outrage from Washington, some big, some small. The UN resolution, in which the US aligned with Russia, China and North Korea against Europe, is probably the clearest sign yet of the break in the trans-atlantic alliance. This is far more important than anything that has ever been happening at the Munich Security Conference, a place of idle pontification. But it is often the smaller signs that are more telling. Kaja Kallas, the EU’s chief diplomat, travelled to Washington for talks with Marco Rubio, who then decided that he did not want to see her.

Also yesterday, in response to a question, Trump announced a general tariff on all products from the EU of 25%, informing us that the EU was created to screw the US.

Companies faced with such tariffs will mostly be better off relocating production to the US. Economists keep on belittling Trump’s trade policies. We should remember that the bigger danger is not their failure, but their success. Apple’s decision to invest $500bn in the US should perhaps be a warning sign. With 25% import tariffs, it would make no sense for US pharmaceutical companies in particular to produce in Europe. And remember those trade economists who predict that the rise in the dollar would outweigh the tariffs. The dollar has fallen since, as have US interest rates. Most of these commentators fail to distinguish between their desire to see Trump’s policies fail, a desire that is almost universal, and the reality of highly complex policy interactions. 

Hardly a day goes by without Europeans hyperventilating about Trump. Some newspapers cover nothing else these days. What Europe should be doing instead is to ignore, and to bring some sharp focus to the debate on how to make our own economic model work in a post-globalisation world, one in which we can no longer offload our surplus production on world markets.

On defence, we should be talking about the bigger picture, not so much about Ukraine. Europeans know nothing about fighting wars. Our debate is dominated by people from small countries with no military capacity whatsoever. We have a lot of virtue signallers, people with the Ukrainian flag next to our names in social media, but no clear realisation of the sacrifices needed to be able to fight wars. The debt brake discussion in German is quite symbolic for that. More military spending is fine, as long as it does not inconvenience us. 

Another important aspect of these discussions are the strategic opportunities. We would no longer have to follow US policy on China, for example. The Huawei ban has been a massive shock to Europe’s development of mobile phone networks. China has started developing 6G, the technology with the biggest impact on data networking of industry. This is a good time to think ahead. But for that we need to get out of reactive mode. Trump is very good at keeping us there.

One of the lessons France can draw from the German elections is that even proportional elections won’t produce clear majorities either. The fringes got stronger in Germany just as they did in France last year, irrespective of the electoral system. In both countries the centrists weakened.

In French politics there is this dream that if only they had some proportionality in the system the outcome would have been different. The Rassemblement National thinks that proportionality would have given them the lead and the prime minister’s job in the snap elections last year. With 33.2% in the first round, they garnered more votes than the CDU/CSU did in the German elections last weekend. Tactical voting in the second round of this winner-takes-all system then meant that despite winning the popular vote in both rounds they came third in terms of seat counts.

But this dream underestimates the dynamics and the possibility that voters may vote differently under different systems. The two rounds in the French election system allow voters to vote with their heart in the first round and with their heads in the second, as they say. If there is only one vote that decides who gets in according to the percentage their party gets, voters have a more complex calculation to make. It is not clear that they would vote the same way.

The German elections are also a reminder that what we have seen in France is not singular event, but a trend observed elsewhere in Europe. The extremes get more votes and the centrists emerge weaker than before. Compromise, so hard in France, is also not so evident in Germany. Coalition talks between CDU and SPD will be difficult with divisive matters such as defence, migration and citizens income on the agenda.

Europe is going through a period of great disturbances and upheavals and voters want to see more radicalism. Whether this is in a proportional or a two-stage first past-the-post system is only marginally relevant.

Euractiv got a leaked document from the EU Commission suggesting that they seek to speed up the asylum process by redefining the third country principle and change the rules for the appeal process once an asylum claim has been rejected. Ursula von der Leyen is in consultation with member states to advance the review normally due in July to March. The political context is the emergence of far-right parties in most EU countries with their desire to cut migrant inflows and facilitate the deportation of those denied asylum. Germany, a country with a number of violent attacks recently, will soon have a new government and a new migration policy.

The concept of safe third country has been used to deter and curb migrants arriving in Europe since it was first formulated in the 1980s. More recently, it has been instrumentalised politically through dedicated deals with third countries deemed as safe. The EU concluded its first deal with Turkey to take in migrants in return for financial support. Other deals followed with Libya, Tunisia, Egypt and Mauritania. The UK also made waves with its Rwanda scheme over the past years. Yet the actual transfers remained minimal.

Those deals allow EU countries to send asylum seekers to another country, provided that they are protected there. The criteria for doing so is that the third country is to be considered safe and that there is a link between the asylum seeker and this third country. The issue of safety has been a contentious one in the past, with legal questions hanging in particular over whether a country can be considered safe for some individuals and not others. The ECJ is expected to rule on this today. 

But the new consultations could critically revise this condition. On the menu of choices is to either scrap the connection requirement completely, replacing it with a transit criterion, or to keep it and alter what it means. Removing the link criterion implies that no connection has to exist between the migrant and the country he or she is send to. It would significantly increase the list of eligible countries, but also may lead to a worse integration of migrants there. Who will be monitoring to ensure that those migrants are protected in those third countries?

Under the transit proposal, migrants only have to prove that they passed through that country once. Then there are also more flexible interpretations of the existing criterion. For example could connections be interpreted as cultural links through language or religion?

When it comes to appeals process, the current rule is that if someone applies for asylum but is told their application is inadmissible, they automatically have the right to stay while they appeal this decision. This means they cannot be sent away until a judge reviews their case. The new revision wants this to no longer be automatic. The person would have to ask a court for permission to remain, or the court could decide on its own. 

This is a leaked document and thus a lot can still change until a final proposal is on the table. But we can already see the direction of travel.

A European journalist, who shall remain unnamed, recently thought he had the ultimate killer argument against Donald Trump when he accused him of being isolated on the world stage. For a European, being isolated is probably the worst thing that can ever happen to you. Not getting invited to the Munich Security Conference would be an unrecoverable career setback. When Emmanuel Macron invited a few selected leaders to a summit a couple of weeks ago, the big debating point amongst EU folk was, who was invited and who was not. It was not about what the meeting should accomplish. Sitting at a table is really important to Europeans.

This is all fine for as you are dealing with relatively unimportant things, like financial regulation. But this is not the mindset with which you want to fight a war. We have yet to meet a European with a worked-out strategy to defeat Vladimir Putin. We are red-liners. We argue from first principles. We claim that we will support Ukraine for however long it takes. This idea worked spectacularly well for the ECB in the fight against speculators. But it does not translate to wars. 

Ukraine has lost the war. We have no strategy to change this. Of all the nonsense Trump said and tweeted last week - and most of it was nonsense - he was correct on the essential issue - that the war is not winnable. He told us during his campaign that he wants to cut a deal.

The Europeans are in their unfortunate situation on the cats' table of international diplomacy because they outsourced strategic thinking. The US acts, we react. Trump speaks. We are outraged. When Trump threatens tariffs, we threaten retaliation. Strategic thinking means making sacrifices, thinking ahead, factoring in what your opponent will do in response to your actions, have a strategy for second-best outcomes, and one for retreat and defeat.

In a world in which strategic thinking counts, the EU is hopelessly lost.