The industrial landscape is changing in Europe. Helsing, a Munich-based start-up, is ‘diversifying’ from its roots in AI and software to target drones, aircraft, and submarines. The ‘defence’ company is now valued at €12.0bn following an investment from one of Europe’s most successful entrepreneurs.
There is talk of a pivot for the Eurozone, with the euro rising sharply against the US dollar. EU leaders are under pressure to demonstrate that the single market can deliver. The labour market and inflation data have been largely positive. However, one would have thought that the US President’s wrecking ball – random and punitive tariffs – would have driven the Eurozone closer to China. Not a bit of it. The EU-China High-Level Economic and Trade Dialogue set for July 24th – 25th is imperilled, because of “a lack of progress on a number of trade disputes”. The restrictions on rare earth imports shows the Eurozone has been caught in the crossfire between the US and China.
EU leaders are under pressure to ramp up defence spending to 5% of GDP. But that alone is not enough to underpin a long-term revaluation of the euro. What counts, or would make the so-called pivot to Eurozone assets stick, is clear evidence that European leaders can leverage the size of the single market, to secure clear gains on trade. That evidence remains scant at best. And the news that JP Morgan’s European chief is planning to relocate to New York puts the so-called US ‘political risk’ in perspective.
Talk of a pivot to the Eurozone is appealing, but in an uncertain world, the US holds the diplomatic cards, because it remains the pre-eminent military power. Yes, Europe is seeing capital inflows into defence start-ups. But the US is far ahead, and will remain so, because the Trump administration too is ramping up defence spending. It is easy to talk of political risk in the US, but in hard market terms, it is overstated. Selling US assets to diversify into the Eurozone, should only be done on a selective, case-by-case basis.
