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.

Last year, Greece saw big movements on the left with the re-emergence of the traditional Socialist Pasok as the second largest party behind New Democracy. It seemed for a moment that politics had come full circle.

Pasok replaced Syriza, the hard left party that came to power under Alexis Tsipras during the bailout years, and which imploded last year over leadership differences. But Pasok could not grow its voter base since and New Democracy lost votes since the Tempe train crash in 2023, where a train packed with students collided head-on with a freight train, killing 57 people. The investigation into the train crash is considered by roughly three out of four people as a scam, according to a recent survey. And four out of five believe that the government did not do enough to make the train system safe.

This mistrust has permeated the New Democracy voter base. Conspiracy theories are thriving. Pasok now threatens a no confidence motion should the parliamentary committee find anything compromising about this investigation. But Pasok could not capitalise on its aggressive move either. Trust in institutions is at a low point, and this is a theme that has rattled the two main parties already in the past.

The times when either party could win an absolute majority seems to be truly over, while the fringes are getting bigger. Together New Democracy and Pasok now have 38-41% in vote intentions according to two polls this week, with a ten percent lead for the conservatives. Even if the share of seats grants an extra-bonus for the winning party, a single party government looks increasingly unlikely given where the parties are now.

While the two main parties are losing votes, the share of anti-establishment parties is growing. On the right there is the ultranationalist Greek Solution and nativist Voice of Reason. Greek Solution has established itself as the third party. with 7.6-9.6% of voting intention. On the left there is the populist Course of Freedom, which has made big gains recently, rising to 6.9% in voting intention.

What does this mean for future elections? Nobody seems to expect that the anti-establishment parties would eventually take over. About 66% of them do not see them as viable political options and 55% do not want to see them in power according to one qualitative survey. But this is the crux in elections with a wide choice of fringe parties to express one’s protest vote. If enough people protest, eventually anti-establishment parties could garner more votes than the establishment.

Greece’s Athens was the cradle of direct democracy in antiquity. Today, Greece’s representative democracy is having the same problems that we have seen elsewhere in Europe. Voters are faced with a dilemma of choosing between trust and stability. A snap election may satisfy those who accuse the government of mismanagement, but without a viable alternative to govern, it won’t do much to solve the underlying problem of trust.

Isabel Schnabel signalled an important policy change – it is time for the ECB to pause signalling unidirectional moves. So, it’s back to data dependence.

We would have preferred to hear this before the last rate cut, but a quarter point here or there is ultimately not important. We welcome Isabel Schnabel’s intervention unreservedly. The single most important statement she said came right at the beginning:

“We know that we know very little.”

This is in contrast to all the ECB watchers who know so much, and who have been so certain that both inflation and interest rates are headed into the deep flatlands. We note that some were quite flustered about her intervention yesterday. Our recent disagreements with the ECB were mostly about that – a premise of too much certainty in a highly uncertain political and economic environment.

We are aware that no economist in history has ever discarded a model on the grounds that it does not work – a fact that unfortunately disqualifies macroeconomics from the category of empirical science. The reality about monetary policy is indeed that we know a lot less about the future than we think we do. But at least we can see our current data. We see that they are not looking great. We also see the political pressures around us – all of which are pointing towards higher inflation – trade wars, military spending, climate change spending, investment backlogs.

The second most important statement she made in her interview with Olaf Storbeck is a shift in her own policy stance:

“The data are showing that the degree of restriction has come down significantly, up to a point where we can no longer say with confidence that our monetary policy is still restrictive.”

Central bankers assumed that inflation was headed in a direction that is consistent with 2% inflation in the medium-term. With services inflation stuck at 4%, this has not been the case. It is impossible to have services inflation that high, and overall inflation anchored at 2%. We, too, see wage pressures coming down, later than the models predicted. To be confident that inflation is heading down to 2%, we would at the very least need to see more data that confirm this.

We saw in the UK yesterday that inflation is now back to 3%, again to the surprise of the forecasters, as food and energy prices are rising faster than the target. US inflation rates are also trending upwards. The data are showing a co-movement in global inflation rates that goes beyond the effects accounted for by international trade. That’s another part which we do not understand as much as we should.   

Ursula von der Leyen is busy undoing the green agenda of her last term. Her push to simplify EU rules happened so fast that the policy world in Brussels did not really know about it until it was already happening. No transparency and no forewarning. Everything is decided at the top, with her cabinet officials struggling to influence the decision making process.

It started last November in Budapest, when von der Leyen announced drastic changes on green policy to lighten the burden on industrial competitiveness. An omnibus bill was to simplify existing rules to hold companies to account for environmental and social damages. Since Budapest, the simplification drive widened to include five further omnibus bills in 2025 and the deletion of Commission proposals that are now considered as too onerous. The Commission also asked EU member states to fast-track simplification rules.

Does von der Leyen know what she is doing? Politico spoke to Commission officials at different levels of seniority to national diplomats, European Parliament lawmakers, industry and NGOs.

One national diplomat said the lack of information, and the fact that the Commission’s announced plans kept changing scope, range and timeline raises the issue of credibility. The staffers painted a picture of a culture of secrecy, where key policy initiatives are now password protected and where those involved in the write-up of the legislation are not informed. A leaked work plan of the Commission has a blank section where usually legislative proposals are listed for withdrawal. Another leaked document has a blank space where details of the omnibus bill on green policies should have been. Is it because von der Leyen’s circle did not know what to put in there or because von der Leyen does not want lower level staffers to comment on her plans?

Three weeks ago von der Leyen promised to hold talks with the four major groups in the European Parliament to ensure smooth passage before the bill is presented on 26 February. But the Commission did not reach out to them until this Tuesday. Trade unions, green finance groups, and environmental NGOs also complain that there has not been a proper consultation process.

In democracies, or supranational institutions like the EU, breaking things is more difficult than proposing new legislation. It hurts some interests, and you can get stuck in endless talks to find the right balance between the various interests. But that does not mean decisions should be happening in a vacuum. Von der Leyen still has to explain what she is doing and why.

Looking over to the US, Elon Musk is doing the same job on a massive scale. For sure, it is easier there than here in the EU. But Musk also goes into a media offensive linking his mandate back to the election results that clearly wanted Donald Trump and his programme. There is no surprise there, only for those who underestimated Trump. Von der Leyen does not have the same mandate. The need to explain and get people on board is thus even more necessary.

Nothing really is what it seems. Politically the Europeans postured with their sanctions against Russia as a moral imperative that is to force Russia to let go of Ukraine. This strategy did not work out, nor did we really cut all our links to Russia. Russia’s gas pipelines to Europe may be cut off, but Western companies continue to operate in Russia. This may not be their preferred choice, but the exit costs were so substantial that staying was the lesser evil despite political pressure to exit.

This is a bridge between Europe and Russia that might come back in full force once a peace treaty is enacted. Until then, Western companies help Russia to keep its currency afloat and to finance its war efforts in Ukraine.

According to the Kyiv School of Economics Institute (KSE) there are still 2245 western companies active in Russia, a third of them multinational firms. Only 472 left since the war in Ukraine started, and another 1360 have reduced their activities. This is much fewer exits than the media hype suggested, and much more companies still present.

Their profits, which goes in the tens of billions of dollars, largely stayed inside Russia. Nessim Aït-Kacimi called it the monetary iron curtain in Les Echos. Moscow distinguishes between friendly and unfriendly countries. Companies from the US, UK and the EU are amongst the latter category and their companies can only repatriate up to half of their profits. Companies from friendly countries like China, India and Turkey can theoretically withdraw all their money, but in practice they are pressured to invest the money in Russia.

The final decision over profit repatriation is taken in Moscow. What matters to them is to exert control over the capital in and outflows to keep the value of its currency. If all foreign companies were to retrieve their profits, it would put the rouble under significant depreciation pressures.

Amongst the multinationals still operating in Russia are consumer good companies such as Coca-Cola, Pepsi, Nestlé, Mars, Procter & Gamble. There are also pharmaceuticals like Sanofi and AstraZeneca, or banks such as Raiffeisen. These multinationals are the also the main tax contributors to the Russian budget. The KSE estimates that in 2022-23 all foreign companies paid $41bn, which is equivalent of a third of the military budget. Rough estimates for 2024 suggest that Western companies paid an extra $4-6bn in corporate tax in Russia.

Even if EU foreign politics often suggests that there is no continuation as usual, Russia is and remains a large market for western companies. The invasion may have added a high risk premium to such an operation. But Russians may rest assured that they are too big to ignore in the long run and business will come back with those daring to do so.

Donald Trump is sharpening the left-right divide with consequences also for Europe. Europeans have been muddling through with grand or multi-party coalitions. If any party now starts to profile itself with radical ideas like Trump, those coalitions would become impossible.

Take France for example. Emmanuel Macron came to power in 2017 with the promise to overcome the left-right divide and to deliver ideology-free policy. Eight years later it looks like we are back to square one. The Macron episode no longer looks progressive, but like a massive confusion of ideas. Against the backdrop of US politics, there is a renewed desire for clear lines and order again. So is it back to left and right?

It is not only opposition parties that revolt. Bruno Retailleau, interior minister under Francois Bayrou, has no problems with openly saying that there will be no Macronism after Macron. The time of lukewarm water is over, proclaims Retailleau at the front page of Le Parisien.

Retailleau, the most liked conservative politician after Marine Le Pen, Jordan Bardella and Marion Maréchal, is running against Laurent Wauquiez for the leadership of Les Républicains. Both are eager to define a profile for their party that goes beyond the question of whether or not to support Bayrou to prevent another government collapse.

On the left, La France Insoumise stands true to its convictions and explained their break with the Socialists, saying that they do not want to be confused with a party that supports Bayrou and Macron. Can the Socialists still convince left-wing voters as a moderate voice for reason in a climate of radicalised politics?

Even centrist candidates with ambitions for the presidential campaign are repositioning. Gérald Darmanin distances himself from the neither-left-nor-right mantra that so defined Macron’s first term. This is not what the country needs at the moment, he explains. Edouard Philippe and Gabriel Attal are falling in the polls. The latter tries to find a formula that does not betray its roots with some radical but not extremist ideas like eliminating taxation on donations, replacing the pay-as-you-go retirement system with a capital-funded one, and allowing employees to be shareholders in their company. But this is not enough to fill the void that is appearing in the centre. Against Donald Trump and the emergence of European radical parties on the left and right end of the political spectrum, a voice for reason does sound weak by comparison. And it is this weakness that centrists will have to endure and persist before it can get better.

The trouble with the armchair generals that have been leading the commentary in the Ukraine war in the western media, is the reduction to moral posturing. At no point have those who supported weapons deliveries for Ukraine present a costed plan of how to achieve victory. They were hiding behind red lines and the empty slogan that we would help Ukraine for as long as it takes. Not only was there no plan for victory. There was also no plan for second-best outcomes.

The armchair generals include the vast majority of people who attend the Munich Security Conference today, and who hyperventilate about issues whether Europeans should sit at the table. The absurdity of Europe’s position on Ukraine was underlined once again by Olaf Scholz when he said that he would reject a peace by diktat. And then he added in the next sentence, that policy goals must always be for Germany not to be engaged in a war. He is having his war, and eating it. 

It is logical that Donald Trump and Vladimir Putin settle this because there would be no settlement if Kaja Kallas sits at the table. The criticism by the Europeans that Trump gave too much away at the outset is also difficult to take seriously. It was Germany, along with the US, that persistently vetoed Ukraine’s accession to Nato. It is a bit rich for the German defence minister to claim that this issue should have been on the table. And of course, Ukraine will lose land as part of the settlement. Peace deals reflect the military situation on the grounds.

Angela Merkel already said it in 2017 that Europe needed to take its security in its own hands. As ever when confronted with a hard and a soft option, the Europeans chose the soft one. Europeans are the geopolitical equivalent of the righteous welfare recipient, always making demands, and hiding behind others.