Europe is never as strong as when it is cornered, and European construction has often been achieved in difficult times. We could be on the verge of writing a new chapter. The last few days, punctuated by the Munich Security Conference, have highlighted the fracture that now exists in the transatlantic relationship. Using Lenin’s words, Alexander Stubb, the Finnish President, summed up the situation: “There are decades when nothing happens, and there are weeks when decades go by.”
Europe’s geopolitical situation, caught between the United States and China, is not new. However, the gap with Washington has widened considerably since the re-election of Donald Trump, so much so that the Old Continent appears more isolated than ever. The illusion of unwavering US support for Europe now seems to have dissipated in the minds of European leaders, who have been forced to swallow several bitter pills in recent days. For example, we should note the statements of (i) Pete Hegseth, US Secretary of Defense, on the need for Ukraine to give up the territories conquered by Russia, or those of (ii) General Keith Kellogg, Donald Trump’s emissary for Ukraine, confirming that negotiations would go well without Europe (although this position was contradicted by Secretary of State Marco Rubio) while bilateral discussions (“the most cordial in ten years”) between the United States and Russia have been opened. Furthermore, the refusal of US Vice President J.D. Vance to meet German Chancellor Olaf Scholz, preferring the AfD candidate, has sent an additional signal of Washington’s desire to fracture European unity. Faced with this new situation, Europe now knows what to expect. Brussels' desire to relax budgetary rules, in particular to increase defense spending, could thus mark a strategic turning point.
To return to more macroeconomic considerations, last week was also marked by several publications likely to bring volatility to interest rates. This is what happened with the American inflation for the month of January published above expectations. Although seasonal variations are always difficult to adjust for the first month of the year, the figures show stagnation around 3%. While there is no indication of a reacceleration, these data are nevertheless likely to reinforce the Fed's wait-and-see position while the effects of customs duties are still uncertain. For Donald Trump, who wanted a rate cut to offset the effect of his policy, this is also bad news, especially since wage increases are becoming less dynamic, which could cause household purchasing power to decline again. Furthermore, the wave of layoffs in the public sector wanted by the new administration could increase tensions on the job market and weigh on domestic consumption.
