_{*This article was written by Moritz Schwarz, Principal at SBI Ventures Europe, and reflects his personal views, shared here for reference and discussion.}

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"Let every nation know, whether it wishes us well or ill, that we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe, in order to assure the survival and the success of liberty."

These words, spoken by John F. Kennedy in his 1967 inauguration speech, once symbolized the unwavering commitment of the United States to its allies. However, under President Donald Trump's administration, this commitment appears to be fading. The transatlantic alliance, which has been the bedrock of Western security for decades, is now showing signs of dissolution. Yet, paradoxically, this shift is catalyzing a new era of strength and unity for Europe.

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Strength Through Adversity

Donald Trump’s unpredictable foreign policy has inadvertently pushed Europe towards greater cohesion. His policies—from courting Russia to undermining NATO and imposing tariffs on European goods—have served as a wake-up call for the continent. The realization that reliance on American military support is precarious has galvanized European nations into action.

This shift is most visible in the defense sector. Europe's dependence on American intelligence and weaponry, starkly highlighted by the Trump administration's inconsistent support for Ukraine, has prompted the EU to take decisive steps. A landmark decision to raise €150 billion for the European defense industry marks just the beginning of a self-sufficient European security framework. Investments are targeted at reducing vulnerabilities, particularly in air defense, ensuring that Europe can safeguard its own interests independently.

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Economic Unity and Industrial Revival

Trump's trade policies have also had a notable impact on economic dynamics. Aggressive tariffs have introduced volatility into U.S. markets, with indices like the S&P 500 and Nasdaq experiencing significant downturns. Conversely, Europe has seized the opportunity to enhance its own economic stability. Increased fiscal spending, particularly in defense and infrastructure, has boosted investor confidence. This is reflected in the recent outperformance of the MSCI Europe index compared to the S&P 500 over the past four months (+12.9% for MSCI Europe vs. +1.5% for S&P500 since October 24)

Moreover, Europe's issuance of common debt to fund defense initiatives not only strengthens its financial autonomy but also positions the euro as a more formidable global reserve currency. This move, once taboo in fiscally conservative Germany, now underscores a shared

commitment to collective security and economic resilience. The resultant fiscal investments are set to invigorate domestic industries, leading to an industrial renaissance across the continent.

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Mitigating the Impact of U.S. Tariffs

Concerns that U.S. tariffs could devastate the European economy are largely overstated. According to recent data, exports to the United States account for just 7.6% (€504 billion) of the EU's total exports. A hypothetical 10% decrease in these exports would translate to a loss of €50 billion. However, this shortfall can be offset by modest increases in exports to other regions. For example, a 1.22% increase in intra EU-27 trade would effectively compensate for the loss. Similarly, expanding trade with Asia and the rest of the world, which have shown robust growth rates, can further cushion the impact. This diversified export strategy underscores Europe's resilience and adaptability in facing external economic pressures.

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Bridging Old Divides

Perhaps Trump's most ironic contribution to European unity is his influence in bridging the post-Brexit divide between the EU and the UK. Joint efforts by leaders like Emmanuel Macron and Keir Starmer to support Ukraine exemplify a renewed spirit of collaboration. Prospective initiatives, such as a European defense fund inclusive of the UK, could pave the way for a robust, cooperative relationship that transcends the complexities of Brexit.

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A Historic Opportunity

Europe stands at a historic crossroads. The end of the transatlantic alliance, while unsettling, has spurred a renaissance of European self-determination. From defense to economic strategy, Europe is forging a path defined by resilience, unity, and innovation. History shows that Europe has risen to the challenge of geopolitical shocks before. With determination and solidarity, it is poised to do so again—not despite the challenges posed by Trump's America but because of them.

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