Week signals: The European unicorn
Plus: watch points for China, Ukraine, Russia, the US, Israel, Palestine, and Iran.
Hello,
In this edition of Week Signals:
IN REVIEW. Why we’re bullish on Europe, institutional quality versus quantity, discounts and self-deprecation.
UP AHEAD. Chinese New Year, Ukraine-Russia talks, an election in Georgia, the Board of Peace, and the ships of war.
And don’t forget to connect with me on LinkedIn.
Week Signals is the Saturday note for clients of Geopolitical Strategy, also available to GD Professional subscribers on Geopolitical Dispatch.
The Week in Review: Old ground, new opportunities
The week began with big elections in Asia. It ended with a second aircraft carrier sent to the Middle East (more in the Week Ahead, below). In between, JD Vance visited the Caucasus, regional military chiefs met in Washington, and the ghost of Jeffrey Epstein led to yet more scandals. You could be forgiven for thinking that in Europe, the only thing happening was the Milan Winter Olympics. Yet on the other side of the Alps, a no less nerve-racking event unfolded, the annual Munich Security Conference.
Last year’s event was best remembered for the “new sheriff“ speech given by JD Vance, in which the idea of Europe’s “enemy within” (later codified in the US National Security Strategy) was first planted. This year, Marco Rubio will deliver Washington’s address (scheduled for later today), but the European response has already been delivered: in remarks from Friedrich Merz and Emmanuel Macron, we’ve been told the rules-based order “no longer exists”, and Europe will need to pursue its own nuclear deterrence. Take that, Monsieur Trump.
Many outside Europe will roll their eyes. Such warnings, and claims of a Zeitenwende, have been made before. Each time, little happens. After years of low growth, high summits, and bureaucratic pettifoggery, Europe has become a byword for stagnation and drift. And from cosseted dairy farmers to bendy banana rules, many in business like to complain that Brussels is regulating itself into irrelevance in the economic sphere as well. As the US proposes cities on the moon, and China plans a ‘Three Gorges dam in space’, Europe mandates tethered bottle lids.
But look beyond the snark and Euromyths, and a different narrative emerges. European stocks were among the best performers in 2025, and look set to outperform the US again this year. The euro is playing the role of the world’s safe-haven currency. Sweden and Switzerland top the Global Innovation Index. Of the Heritage Foundation’s list of the ten most economically free countries, all are European bar Singapore, Taiwan and Australia (the US came 26th, behind even Germany). Far from the pre- and post-Brexit memes on irregular migration, illegal crossings have dropped, in the past year, by a quarter. And where the US does tariffs, the EU does FTAs.
Europe may be woke, but it’s certainly not broke. European household wealth in aggregate may have long been overtaken by the US, but in per capita median terms, even the tax-burdened French are richer than the average American. All but a few European microstates are beaten by the US in per capita GDP (both nominal and adjusted for purchasing power), but using the UN’s preferred human development measure, the Europeans again come out top. Labour productivity is often higher, debt is mostly lower.
Spending on artificial intelligence may be led by the US, but measured by Microsoft, AI has a greater level of diffusion across Europe (with France and Spain, surprisingly, among the greatest adopters). Europe is dependent on imported fossil fuels, but it dominates the leaderboard in cleantech. The US hosts the world’s top universities, but the world’s top students, outside East Asia, mostly come from Europe. The US (and China) may host the biggest tech firms, but Europe makes the equipment that makes the chips. US vendors may own the cloud, but the cloud invariably uses the software of a staid company in Walldorf. Europe might not have critical minerals, but the companies extracting them are more often headquartered in London or Switzerland than in New York or California. Some of the most interesting work in drone warfare, space technology, fusion energy, and quantum computing is being done in Europe.
So why is Europe so often derided as the world’s museum piece, perpetually doomed to be dominated by one or all of the US, China and Russia? Why are European leaders seen as so hopeless when, on measures of governance and institutional capacity, Europe objectively does so well? It may be that, unlike America’s hype-based economy, Europe’s big secret – for investors and business – is its self-doubt and self-deprecation. Looking behind Munich’s Weltschmerz, what can we really expect for the year ahead?