President Trump is dramatically upending the world we have known for most of our lives. The past two weeks have seen dramatic shifts take place on trade and defence. And it seems, unfortunately, that we have begun Cold War 2.0.
As the map shows, Cold War 1.0 was essentially between the West and the Soviet Union:
- Dark blue countries were NATO members; lighter-blue countries were aligned with the West
- Dark red countries were Warsaw Pact countries; lighter-red countries were aligned with the Soviet Union
- Grey countries were non-aligned countries, originally described at the ‘Third World’
Cold War 1.0 saw the West and Soviet Union wage a perpetual campaign for influence in almost every country. Soviet Foreign Ministers and US Secretaries of State circled the globe, probing weak spots and gaining advantage.
Thankfully, it came to an end in 1989 with the fall of the Berlin Wall. Defence spend collapsed from a peak of 8%-10% of GDP. And social spend increased to take its place, as discussed last week.
“If you want peace, prepare for war” – Friedrich Merz
But today, we seem to be going ‘back to the future’. Wars are underway in Europe and the Middle East, and are threatened in Asia. And as French President Macron told the country on Wednesday:
“I want to believe that the United States will remain at our side. But we must be ready if that is not the case.”
Europe has been gradually waking up to this new normal. As likely next German Chancellor, Friedrich Merz warned a year ago in Stuttgart:
“A central theme of the speech was security policy, underlined by the Latin proverb “Si vis pacem, para bellum” – “If you want peace, prepare for war”. Merz made it clear that a victory in Ukraine over Russia was essential for Europe’s security.”
Merz has now followed through in dramatic fashion, promising “to do whatever it takes.” As Reuters reports:
“The parties in talks to form Germany’s new government are considering quickly setting up two special funds potentially worth hundreds of billions of euros, one for defence and a second for infrastructure… around 400 billion euros ($415 billion) are needed for the defence fund and 400 billion to 500 billion euros for the infrastructure fund”.
This is a complete reversal of German policy for the past 15 years, which was based on a “debt brake”. It has created a massive backlog of essential work in both areas.
Germany isn’t the only country that has suddenly woken up to the need for change. European leaders have spent much of the past week digesting the disastrous White House argument between Presidents Trump and Zelensky.
This followed the extraordinary comments by Vice President Vance at the Munich Security Conference. As former UK premier Sir John Major noted:
“It’s extremely odd to lecture Europe on the subject of free speech and democracy at the same time as they’re cuddling Putin. In Mr. Putin’s Russia, people who disagree with him disappear, or die, or flee the country, or — on a statistically unlikely level — fall out of high windows somewhere in Moscow.”
Almost overnight, European leaders have now agreed an €800bn ReArm Europe fund.
“We have no eternal allies, and we have no perpetual enemies. Our interests are eternal and perpetual, and those interests it is our duty to follow” – Lord Palmerston
Essentially, the last few weeks have turned our world upside-down, confirming Lenin’s famous comment at the time of the Russian Revolution.
Since 1989, economics have driven decision-making. But today, we are back in the geopolitical world described by Victorian statesmen such as Lord Palmerston.
It is a world of shifting alliances. And it prioritises defence.
As we noted in last week’s ‘6 Key Rules for Success‘, defence is set to be a major growth area for the future as Cold War 2.0 begins.