Groupe d'études géopolitiques

I will not pretend that what lies ahead for Europe is easy. The strain upon our continent is profound and growing heavier by the month.

But this is not only a moment of danger. It is also a moment of revelation.

For the forces now testing Europe are accomplishing something that decades of peace and prosperity could not: they are compelling Europeans to recognise, again, what they share in common, and what they are willing to build together.

That should give us confidence. It should also make us clear-eyed about the scale of the task before us.

Since 2020, one external shock has followed another, each compounding the last, each narrowing the room for hesitation. We are still absorbing tariffs from our largest trading partner at levels unseen in a century. Now war in the Middle East has returned inflation to our economies and anxiety to our households. Even when the Strait of Hormuz reopens, the fractures inflicted to supply chains could extend into months or years.

These shocks would be difficult in any circumstances. But they arrive just as Europe’s investment needs have become immense. What was already estimated at around €800 billion a year in additional strategic spending has, with the defence commitments of recent years, risen to almost €1.2 trillion a year on average.

Growth is therefore the condition for everything Europe now says it must do: finance the energy transition, defend its continent, build the industries of the digital age, and sustain societies that are growing older.

And the world that once helped Europe generate prosperity is no longer there. It has become harsher, more fragmented and more mercantilist.

Across the Atlantic, we can no longer assume that the guardians of the postwar order remain committed to preserving it. Decisions with profound consequences for European economies are increasingly taken unilaterally, in disregard of the rules the United States once championed. And for the first time since 1949, Europeans must face the possibility that the United States may no longer guarantee our security on the terms we once assumed.

Nor does China offer an alternative anchor. It is generating industrial surpluses on a scale the world cannot absorb without hollowing out our own productive base. And it is directly supporting our adversary, Russia.

In a world of changing partnerships, every strategic dependence must now be re-examined. For the first time in living memory, we are truly alone together. Europe is responding to this new reality. But it is responding within a system that was never designed for challenges of this magnitude.

The European project was built, deliberately and wisely, to prevent the concentration of power. After the catastrophes of the first half of the twentieth century, Europeans resolved that no member state would dominate the others.

Instead, they created a different model of governance, which was shared and diffused. Independent agencies, rule-bound processes and financial markets were enlisted to do work that, elsewhere, would have required open political choice. Where agreements between governments had to be found, European governance wrapped them in layers of process that stripped them of their political charge. Decisions that in another context would have been divisive came to appear administrative.

The achievements of that system were extraordinary. Peace on a continent once defined by war. The return of nations that had spent generations behind the Iron Curtain into a community of free peoples. The single market. The euro. The freedom to move across borders that for centuries had divided Europeans from one another.

For seventy years, this architecture carried Europe forward. It allowed us to achieve something historically rare: integration without subordination. But it rested on two fundamental assumptions.

The first was that Europe had built a truly open economy in which the state did not need to direct growth: free trade internally through the single market, and free trade externally through a rules-based international order.

The second was that Europe would never again need to confront the hardest questions of power and security, because they would be answered for us.

Both assumptions have now proven hollow. And as they fall away, the political questions Europe sought to soften are returning to the heart of the European project.

Nowhere is this more visible than in the contradictions of Europe’s own economic model.

Externally, we dismantled barriers to trade, welcomed global supply chains and built the most open major economy on earth. But internally, we never fully practised the openness we preached: we left the single market unfinished, capital markets fragmented, energy systems insufficiently connected, and large parts of our economy encased in layers of regulation.

There is an irony to all this. Europe relied on markets to do work that common political authority was not empowered to perform. But we denied those markets the continental scale they needed to succeed. The result was not a true market economy, but an asymmetric one. And from this asymmetry flow many of the vulnerabilities now confronting Europe.

The first vulnerability is our exposure to external demand. European companies were drawn outward in search of the growth Europe itself could not provide. Since 1999, trade as a share of GDP has risen from 31% to 55% in the euro area. In the United States and China, by contrast, it has barely moved. Both remain far less exposed to trade.

Our sensitivity to shifts in American and Chinese policy is therefore not simply a misfortune imposed from abroad. It is the reflection of our own failure to build a sufficiently deep domestic market.

The second vulnerability is our growing strategic dependence. No advanced economy can eliminate it entirely. The United States has exposures of its own, including in critical minerals. But Europe’s position is of a different order.

Had we taken the steps to integrate our economy, capital markets would have channelled more of Europe’s savings toward productive risk at home. Energy would move more freely across borders, supported by grids, interconnectors and storage. Decarbonisation would be closer within reach, and our economies less sensitive to fossil fuel shocks: since the Iran conflict began, citizens of countries with higher shares of clean energy have paid, on average, around half the wholesale electricity prices of those with lower shares.

But Europe chose a more defensive path. We tried to hold disruption at bay. We limited consolidation, constrained risk and postponed cross-border investments. But the result was not greater control. It was dependence.

Today, half the capital invested through European funds flows back into the United States, where both risks and returns are greater. We rely on America for 60% of our LNG imports. Even in clean tech, Europe cannot yet deploy its green transition at scale without increasing dependence on Chinese supply chains.

The third weakness — and perhaps the most important — is Europe’s deteriorating position in the technologies that will define the next decade.

Since 2019, Europe’s hourly productivity gap with the United States has widened by 9 percentage points, on a purchasing power parity basis and in constant prices. This does not, by itself, measure differences in living standards. But it does point to a growing divergence in productive capacity, reflecting not only America’s larger technology sector, but the deeper digitalisation of American firms and workflows.

Artificial intelligence now arrives on top of that divide.

OECD scenarios suggest that roughly half of productivity growth over the coming decade could derive from AI and its diffusion across the economy. At no point in recent memory has so much of our economic future depended upon a single technological transformation.

But AI is not merely another digital tool to adopt. It requires an industrial mobilisation on a scale not seen for generations: vast investment in energy, semiconductors, computing infrastructure and capital. And here Europe is falling behind.

The United States is on track to spend roughly five times more than Europe on data centre construction by 2030. China is mobilising at a similar scale. Were Europe to match that ambition, power demand could rise by 20–30% compared with today.

Europe possesses the savings, the talent and the latent energy potential to compete in this transformation. But the same barriers and constraints that produced our exposure and dependencies now prevent us from mobilising at the scale the moment demands.

This is not a gap we can afford to let widen. Unlike electricity or the internet, AI improves through use. Every round of deployment generates the data and capabilities that make the next round more powerful still. The economies that assemble these advantages first will pull permanently ahead.

All three consequences point back to the same source. Europe opened itself to the world without completing the market within. It became too reliant on demand from abroad, too dependent on capacities controlled elsewhere, and too fragmented to mobilise its own scale.

The question now is how to correct that imbalance. Across Europe, different answers are emerging.

For some, the answer is not to change: as others retreat from openness, Europe should seize the opportunities they leave behind, expand trade with the rest of the world, and become the foremost defender of the rules-based system.

Europe can still gain from further trade liberalisation. But we should be honest about its limits. According to one estimate, even if Europe successfully concluded all current trade negotiations, the long-run boost to our GDP would amount to less than 0.5%.

The deeper problem is political. New trade deals are easier to agree than confronting the unfinished work at home, because that work forces choices Europe has long preferred to avoid: to confront the established rent positions and the vested interests that gain from an incomplete single market and fragmented energy markets. If openness remains our only answer, it becomes the absence of a decision.

For others, the answer is to reintroduce a strategic state into markets. Across Europe, there is a renewed appetite for industrial policy — to direct capital toward technologies we failed to build, to shelter strategic sectors from external pressures, and to use tariffs and state support to protect at home the growth we are losing abroad.

These views are understandable. In many respects, they are necessary. Every major economy in the world is now deploying industrial policy at a scale that makes a mockery of the idea of a global level playing field. Europe must navigate increasingly complex dependencies on both the United States and China. We cannot afford ideological rigidity.

But these instruments will not deliver what their advocates hope unless Europe also resolves the inconsistency at the heart of its own economic model.

Consider what happens if Europe adopts a more assertive trade posture. Retaliation invites counter-retaliation — costs that Europe, in its current form, is poorly positioned to absorb. We are already witnessing the effects of American tariffs: since Liberation Day, European exports to the United States have fallen by around 17%.

Yet when we look across the Atlantic, we see an economy that that is able to preserve its growth from the disruptions it helps create. Despite rising trade tensions, inflation and conflict in the Middle East, the IMF has revised upward its growth forecast for the United States next year, while revising Europe’s downward.

The lesson is that external toughness requires internal depth. Within Europe, member states differ significantly in the depth of their integration. ECB research suggests that if all moved closer to the level already achieved by the best performers, the long-term welfare gains could exceed 3% — roughly four times the projected growth impact of higher American tariffs.

“Made in Europe” should also be seen in this light: as a way of using European demand more deliberately. It should give industries with long investment horizons — semiconductors, clean tech, defence — a market large and stable enough to invest here. Without demand of its own, Europe cannot sustain a credible posture abroad.

Industrial policy faces a different version of the same problem.

If Europe’s member states attempt large-scale industrial policy within the current structure of the single market, they will fail. They will spend wastefully, fragment investment along national lines and impose costs on one another. IMF research finds that subsidies granted in one member state suppress growth in others, with negative spillovers eroding the original gains within just two years.

The ideal answer would be to coordinate state aid at European level. But that is not the only way to reduce these distortions. A truly integrated European economy would itself change the field on which industrial policy operates.

Even if state aid were still granted within national borders, its beneficiaries would increasingly be firms that had already been tested across Europe. The leading companies in each jurisdiction would be less likely to be protected national incumbents, and more likely to be European-scale firms competing where capital, energy, skills and supply chains are strongest.

Unlike the failures of the 1970s, this is how true European champions are most likely to emerge: exposed to continental competition, and supported by a policy strategy at European level.

That would in turn give governments clearer signals about where Europe’s real competitive strengths lie. Public money would be less likely to sustain firms with no prospect of scaling, and more likely to reinforce capacities Europe genuinely needs. Intervention could become narrower, cheaper and more effective.

The more Europe reforms, the less it must rely on debt — national or common — to compensate for its fragmentation.

That is why the single market and industrial policy should not be treated as rival philosophies. Properly designed, each strengthens the other.

But the deeper Europe moves into industrial policy and strategic technologies, the harder it becomes to avoid the central external fact of our age: our relationship with the United States has changed.

Europe cannot reshore every critical technology by itself. The cost would be prohibitive. We will need preferential arrangements with trusted partners: offtake guarantees, common standards, shared investment and secure supply chains. The United States will remain central to that effort. The EU-US Memorandum of Understanding on critical minerals is an early example.

Yet the partner on whom we still rely has become more adversarial and unpredictable. Europe has sought negotiation and compromise. It has mostly not worked. Each time we absorb a shock without response, we lower the cost of the next one. A posture intended to de-escalate is inviting further escalation instead.

For now, Europe needs the ability to respond more assertively to put the partnership back on more equal terms. What holds us back is security. An alliance in which Europe depends on the United States for its defence is one in which security dependence can spill into every other negotiation — trade, technology, energy.

That is why the changing American stance on European security should not be seen only as a danger. It is also a necessary awakening. If the United States is asking Europe to take greater responsibility for the defence of our continent and our neighbours, then Europe must also gain greater autonomy in how that defence is organised — and with that autonomy will come greater strength in its trade and energy relationships.

This need not weaken the transatlantic relationship or NATO. On the contrary, it would place both on firmer ground. A Europe that can defend itself may even be a more valuable ally. And a partnership built on mutual strength will always be more mature than one built on asymmetric dependence.

For Europe itself, the opportunity is substantial. Taking greater responsibility for our defence also means rebuilding the industrial and technological base on which that defence depends. European defence R&D is just a tenth of American levels. European governments spend €40 to €70 billion a year on American weapons, and our failure to consolidate demand wastes a further €60 billion in lost economies of scale.

But important changes are already underway.

Europe has made its most consequential strategic choice in decades: to invest in its defence. By the end of this decade, Germany alone will spend roughly what Russia now spends on its fully mobilised war economy.

And Ukraine is driving a form of practical defence integration that Europe long struggled to achieve by design. Countries are ordering the same equipment because they cannot afford to wait for bespoke national variants. European firms are producing Ukrainian-designed systems on allied territory.

Defence cooperation is spreading rapidly: a recent mapping exercise identified more than 160 bilateral and plurilateral defence arrangements between European states, the United Kingdom and Ukraine — most of them signed since Russia’s invasion. Six partnerships carry a mutual defence clause.

The task now is to turn this patchwork into clear and binding commitments. If a member state is attacked, Europe’s response should be unambiguous even before the crisis begins.

There are two routes to giving that commitment substance, and they need not be mutually exclusive.

One is through smaller coalitions of countries whose capabilities and threat perceptions already draw them together. In practice, much of Europe’s military response is already being carried by a core group — Germany, Poland, France and the United Kingdom, alongside the Nordic and Baltic states which are closest to the threat.

Not every country must contribute in the same way. Ukraine has shown that modern defence no longer begins and ends with tanks, aircraft and artillery. It also depends on batteries, sensors, software and the ability to adapt civilian technologies at speed. Some countries will provide forces; others will provide drone components, cyber capabilities or logistics; others still will help financially.

The other route is to give operational substance to Article 42(7), the EU’s mutual defence clause, which, although legally defined and once invoked, has not yet been translated into concrete plans, capabilities and command structures.

Who joins this common effort will matter profoundly. Every political community is ultimately shaped by its understanding of mutual obligation — by what its members believe they owe one another when the worst happens. For seventy years, this was a question Europe could leave partly unanswered. Now we must answer it ourselves.

The first signs are already visible. When Russia invaded Ukraine, Europe chose to stand behind a nation fighting for its freedom, and sustained that commitment year after year. When Greenland was threatened, Europe stood up to its closest ally and, in doing so, discovered capacities it did not know it had. Even parties that built their identity on national sovereignty now recognise that no European nation can defend it alone.

But the pressure for change is now coming from every direction. Europe is being forced to take decisions it so far avoided. And for the first time in many years, the conditions for making those choices are beginning to exist.

There is a unity of diagnosis that is genuinely new. The nature of Europe’s predicament is now widely understood across governments and citizens. The roadmap for action exists and, in some areas, the European Commission is already taking action.

Under the pressure of these years, Europeans are being reminded of values they had begun to take for granted: solidarity, democracy, the rule of law, the protection of minorities. These are the inheritance of postwar Europe. And they are becoming visible again because they are being tested.

That recognition is more powerful than any policy programme, because it gives Europeans a reason to act. And citizens are already clear about the direction Europe must take: nine in ten surveyed by Eurobarometer want the Union to act with greater unity; three quarters want it to have more resources to meet the challenges ahead.

But when citizens ask for more Europe, they are not simply asking for more of the Europe we have. Nor are they asking for an abstract institutional blueprint. They are asking for practical improvements in how Europe protects and empowers them, in ways they can see working and hold to account. The question is how to turn this demand for action into forms of decision-making capable of delivering it.

Our current experience is that action at the level of twenty-seven often cannot deliver what this moment requires. The problem is not a lack of ambition among leaders. It is what happens after ambition enters the machinery. Agreements are processed through committees that dilute and delay until the outcome bears little resemblance to what was intended.

The result is action that can fall so far short of the scale of the challenge that it becomes worse than inaction. And an EU that claims responsibility but repeatedly underdelivers enters a cycle it cannot escape: weak delivery erodes legitimacy, and weak legitimacy makes delivery harder still.

We must break that cycle.

Those countries that feel the weight of this moment most acutely — and understand that the window for action will not remain open indefinitely — must be free to move ahead. This is what I have called pragmatic federalism.

Its virtue is that it can rebuild delivery and democratic legitimacy together. Countries with the will to act should deepen cooperation in concrete areas, through instruments that produce results citizens can see and measure. And each should enter through a deliberate national choice, endorsed by its electorate, so citizens know what their government has committed to and can hold it to account.

Delivery builds legitimacy. Legitimacy makes deeper cooperation possible. And as the habit of acting together grows, so does the sense of common purpose.

This approach will necessarily be experimental. Some initiatives will work; others will not. That is why it is pragmatic. But it is also federalism, because the experiments are not random. They are guided by a shared destination: the conviction that Europeans must learn to exercise power together if they are to preserve their values.

The euro shows how this can happen. Those who were willing moved ahead. They built common institutions with real authority. When the commitment was tested almost to breaking point, the solidarity required turned out to be far greater than many had imagined. The framework held, countries continued to join and support for the euro now stands at a record high. For the societies that share it, leaving has become almost unthinkable.

That is what makes European commitments durable. Not words written once in a treaty, but the experience of acting together, being tested together and discovering through success that solidarity can work.

Our task now is to create that same dynamic again in energy, technology and defence,. Europe’s leaders know where the work lies. They must now decide whether they are willing to put substance before process, and to choose the instruments that can deliver.

We have reached a point where the decisions Europe must take can no longer be contained within the institutional framework we have inherited. Some require a scale that only Europe can provide. Others require a degree of democratic legitimacy that must be built from the ground up.

Together, they require Europe’s leaders to go one step further.

Across our continent, Europeans are showing that they want Europe to act. They want the European Union to defend their freedom, prosperity and solidarity. And they continue to uphold, with passion, the values that make Europe worth building and, today, make it unique.

The task now is to answer that trust with courage and to show that Europe can again turn crisis into union.

_This interview was originally [published in Grand Continent](https://legrandcontinent.eu/fr/2026/02/20/eichengreen-dollar-futur-monnaie/)_

In the foreword of your book, you warn your reader that this is not yet another book about the history of money. And yet your work was very reminiscent in its breadth and scope of David Graeber’s 5,000 Years of Debt, which was really a history of money as well as a history of debt. So I was very curious to hear how you would place your work in the broader historiography of research on international currencies.

I resisted the temptation to write yet another history of money, of which there are many, and focused instead on the cross-border uses of money – in modern terminology, on international currency status. My hope is that this places in relief the tension between currencies as a construct of the state on the one hand and the need for a form of international liquidity, a vehicle for payments globally, that transcends the state, on the other. This tension is at the center of the book.

And so because of that tension, you immediately turn to geopolitics. And so you tell a history of successes and failures of international currencies. Is there a template or a set of lessons that emerge from the history of the successes and failures of international currency that allows us to capture the turn from one global currency to another and do these features speak to the current moment?

I like to think that I’m both an economist and a political scientist. Truth be told, one might say I’m a professional economist and amateur political scientist, though I’ve been working on the border between the two disciplines for a long time. International currency status is an example of a topic where one can’t avoid looking at the interplay of international economics and international politics.

As I write toward the beginning of the book, international currency status rests on the strength of the issuing country’s commercial and financial links with the rest of the world – on its international economic relationships. But international currency status also has political foundations. International currencies are the currencies of states where there exists a separation of powers, where rule of law deters opportunistic behavior by the issuer. International currency status depends also on the issuer’s ability to forge and maintain durable geopolitical alliances, since countries hold and use the currencies of their alliance partners. All three aspects have been pointed up by Trump 2.0, but political scientists have thought about these issues for a long time. Think of Benjamin Cohen, a Ph.D. in economics who has spent his academic career in political science departments and who has done important work on international currencies. Think of the political scientist Susan Strange, likewise. Or think of Charles Kindleberger from the economics side. There’s a long tradition of bringing international politics and international economics together around this topic, as I attempt to do in this book.

You insist a lot in the book on institutions and the rule of law, and you also insist on military might. Is there in your mind one that is more important than the other? Can they be substitutes? Can you replace military might by a very stable legal and political system or vice versa? When you think of the history of the pound sterling for example, it seems that sterling’s role as an international currency survived well beyond the time when the UK was a dominant military power, and potentially because of the stability of its legal system and its institutions? Today the US may seek to replace the stability of its legal system and institutions by greater display of force as a way to shore up the role of the Dollar.

You’re right: sterling was still the leading international currency in the 1930s, well past Britain’s geopolitical heyday. The strength of its institutions, the depth and liquidity of its financial markets, the century and more of building up the City of London as a leading international financial center – these factors all played a role in the currency’s endurance. But at least as important – something that is again relevant today – was the absence of a meaningful alternative. For much of the 1930s, the US was in the throes of a deep depression. It suffered three serious banking crises. The Fed stopped backstopping the market for international (trade) credits. This was an important part of the reason why sterling regained and then maintained its position as the leading international currency in the 1930s.

In the end, of course, events like the 1956 Suez Crisis highlighted Britain’s geopolitical weakness and sealed the fate of the pound as an international reserve currency. The UK needed help from the IMF to prop up sterling, and the U.S. demanded that the country defer to America’s geopolitical wishes – to put the matter politely – as a condition of its support. The Suez Crisis symbolized how sterling was now firmly relegated to the second tier of international currencies. But in this instance, the fundamental fact was that Britain was financially weak, and that financial weakness forced it to accept a military climbdown – not so much the other way around. The interaction of economic weaknesses and geopolitical weaknesses cut both ways, in other words.

Throughout history, leading international currencies have been the currencies of states that have both strong economies and institutions of governance on the one hand, and the ability to defend their borders against external threats and to project geopolitical power on the other. Both elements have to be present to sustain their currency’s international position.

If we turn to the US more specifically, because it really looks like your book is a way of talking about the dollar today or the dollar tomorrow. Many imagine that the end of the dollar really started in 1971 with the Nixon shock. And yet the dollar survived as the leading, if not the dominant, reserve currency pretty much until today. And so what is your account of what happened since then? How is it that the demise of the dollar that we’ve been calling for the last 50 years now has so far been proven wrong?

Some otherwise sage observers did conclude that the end of Bretton Woods spelled the end of the dollar as an international currency. Charlie Kindleberger wrote a famous, maybe infamous, passage in 1976 about how the dollar was dead as an international currency. But with the exception of the second half 1970s – just when Kindleberger wrote – a period when observers were deeply worried about the U.S. balance of payments, the strength of the U.S. economy, and the commitment of U.S. authorities to maintain what eventually came to be called the “strong dollar policy,” U.S. monetary stewardship was not that bad. Paul Volcker restored price stability. Under Alan Greenspan, the Fed was quick to respond to threats to financial stability. The same is true of Greenspan’s successors up to now. Their policies may have other costs, but they helped to preserve the dollar’s international role.

Together with the absence of an attractive alternative, this explains why otherwise wise observers predicting the imminent demise of the dollar continued to be wrong. International currency status is a very slow-moving variable; only a very large shock, larger even than the collapse of Bretton Woods, can decisively displace it. But we also know that there can be tipping points where slowly moving variables accelerate dramatically.

So do you think that the fall of an international currency operates like Hemingway thought of his own personal bankruptcy: « Gradually, then suddenly »?

Or as Rudi Dornbusch said, “crises take longer to develop than you think they will, and then once they erupt they proceed much faster than you ever thought they could.” This is certainly the case for currency crises.

Network effects, historical persistence, habit formation, call it what you may, are strong. In the monetary and financial domain, it pays to hold and use the same currency or currencies held and used by others with whom you do business. But there can also be events that lead people to simultaneously move away from established practice in favor of something new. The nervous chatter we hear around the dollar currently raises the possibility that such a moment could be coming.

And maybe the difference between today and the ’70s is that today we can make the case for alternatives existing or starting to exist. One potentially being the euro, the other might be the renminbi. Do you view today the landscape of possible alternative currencies as fundamentally different today from where we were in the 70s?

Well, rivals to the dollar certainly are more serious today than the German mark in the 1970s or the Japanese yen in the 1980s, when the German and Japanese governments, for their own peculiar reasons, resisted currency internationalization. Today, Euro Area and Chinese officials are actively encouraging internationalization of their currencies. That said, neither the Euro nor the Renminbi is in a position currently where it can fill the dollar’s shoes.

I‘m probably more dismissive of the Euro in the book than my European friends would prefer! There’s no mystery about what Europe and the Euro Area need to do to enhance the international attractions of their currency. But to all appearances they still lack the political will to do it: to complete Europe’s capital markets union, to issue more common debt, and to develop a more forceful common, foreign and defense policy. Movement in these directions may be accelerating, what with the Trump Administration’s provocations, but from a standing start. Creating the Euro took half a century. I’m not predicting that meaningfully internationalizing the Euro will take another half century. But it won’t happen overnight.

Does that make you more hopeful about the renminbi as an alternative then?

To the contrary, Renminbi internationalization seems to have stalled out. If you look at data on reserves held in renminbi, or on cross-border transactions messaged through SWIFT (even China’s own Cross-Border Interbank Payments System CIPS continues to rely on SWIFT), progress on Renminbi internationalization has all but stopped. This could be because Chinese growth has slowed from double digits to the 4% to 5% range. It could be because of China’s unresolved problems around real estate and local government financial vehicles. It could be that the kind of political checks and balances that have characterized every leading international currency in history are absent in China. There’s nothing to prevent the Politburo or President Xi from waking up tomorrow and changing the rules of the monetary game. These factors will continue to render international investors, both private and public, reluctant to lean too heavily on the Renminbi.

To be sure, CIPS is growing. China’s banks are doing more overseas lending in their own currency. But it’s important to remember how far the Renminbi remains behind the dollar as a global currency. It accounts for 2% of identified global reserves, compared to the dollar’s 57%. It accounts for barely 5% of global foreign exchange turnover, compared to the dollar’s 90%.

The other thing to bear in mind is that the traditional story that a country and a currency need a large platform before they can play consequential global financial roles may be changing. New digital technologies have narrowed bid-ask spreads for the currencies of smaller countries, currencies that were previously prohibitively expensive to hold and use. Today you can trade Australian dollars and Norwegian krona on your cellphone. Consequently, much of the ground that the dollar has lost in recent decades as an international and reserve currency has been gained not by the Euro or the Renminbi but by the currencies of these small, open, well-managed, generally inflation-targeting countries: in Scandinavia meaning Norway, Denmark and Sweden, in East Asia the likes of Singapore and South Korea, and in Oceania the likes of Australia and New Zealand.

But the US seems to be increasingly aware of the risks and the shadows cast over the dollar. And there seems to be the beginning of a strategy to try and contain these risks. The GENIUS Act appears to be a strategy to use the issuance of stablecoins as an alternative source of international demand for dollars. It’s a very interesting evolution because the cryptocurrency ecosystem was largely built in opposition to the traditional Wall Street financial system and fiat currencies. And with the GENIUS Act, there is an attempt to reconcile these worlds into a symbiotic relationship to try together to advance the global rule of the dollar. So I was wondering how you view that strategy? And is it a sustainable one in a world where the crypto-asset ecosystem is under strain?

I’d caution against assuming the existence of a _strategy_ on the part of this U.S. government. We scholarly observers are trained to look for an underlying strategy. But in this case I don’t see evidence of a coherent approach to enhancing or maintaining the international role of the dollar.

Even the Treasury Secretary?

Bessent has said conflicting things about whether he wants a weaker or stronger dollar, and about whether he would be prepared to sacrifice the currency’s international standing in return for a “more competitively valued” exchange rate. Then there’s the dollar stablecoin thing. If you read the GENIUS Act and the associated press release from the Treasury in Bessent’s name, they mention a variety of reasons why the stablecoin ecosystem should be regulated: consumer protection, market integrity, financial stability, and enhancing the international role of the dollar. It’s a kitchen sink approach to rationalizing why, in response to lobbying and campaign contributions from crypto companies, the government should license and legitimize issuers. If stablecoins have the ancillary benefit of creating additional demand for US Treasuries because they are held as backing by stablecoin issuers, that’s convenient from the U.S. point of view. If dollar stablecoins are used in other parts of the world, that’s convenient as well. But I don’t think the GENIUS Act is a coherent strategy for maintaining or enhancing the dollar’s international role.

Even if it’s such a strategy, I’m not convinced it will be successful. Takeup of stablecoins in the rest of the world has been less than impressive. Stablecoins are used mainly as on-ramps and off-ramps to the larger crypto-sphere, for remittances, and for illicit transactions. There are other digital alternatives that will give stablecoins a run for their money and quite possibly dominate them in the longer run. I’m thinking about linked fast-payment systems, which are popular in Asia; central bank digital currencies, which can run on a single blockchain or mBridge; and tokenized bank deposits, which is where SWIFT and the big banks are putting their money. I discuss all of these alternatives in the book.

Stablecoins have the problem that they are not obviously compatible with the singleness of money. Will you be able to use “Walmart coin” at Amazon and “Amazon coin” at Walmart? Will stablecoins even be stable? Whether they will actually maintain their value will depend on design and enforcement of the regulations attached to the Genius Act, which by itself is only a broad regulatory scaffold. We have yet to see the actual regulations, much less their enforcement. We don’t know whether broker-dealers in the Treasury market have the liquidity to handle fire-sales by stablecoin issuers, or whether such redemptions will spill back into the crypto-sphere, triggering stablecoin runs. .

Maybe a word on CBDC. In Europe, a lot of people are presenting the digital euro as a venue to boost the international role of the euro, in that it can create a truly public, sovereign, and potentially international payment system. But as you know, it is also being resisted quite a lot by the European banking system, which is worried that the expansion of the digital euro to a broad retail use would deprive European banks of a large amount of sight deposits. CBDCs can raise almost existential questions about fractional reserve banking. Are we moving away from fractional reserve banking if we are going in the direction of CBDC? And what are the consequences for the evolution of the financial system in your view?

In the United States, people worry about stablecoins having the same negative effect on fractional reserve banking. They worry that savers will dump their bank deposits for stablecoin tokens,especially if the exchanges on which those tokens are traded pay interest. So much will depend on— coming back to your CBDC case— on design. CBDCs presumably will not be interest-bearing, which will give the banks a modicum of insulation. There may be ceilings on how much digital cash individuals can hold. Will the banks be the intermediaries between the consumer and the central bank? Will the Euro Area opt for a wholesale CBDC distributed to and by commercial banks, in other words, or for a retail unit that goes directly into a digital wallet on your phone? There are many options. A Euro CBDC could be designed in a way that it would not damage the banking system.

The ECB is working on expanding its bilateral liquidity and swap lines — it has both swap lines, and liquidity lines, which are essentially standard repo. Do you view this as something that’s meaningful in expanding the role of the euro? And first, do you believe it makes sense for the ECB to have this distinction between liquidity lines and FX swap lines?

I don’t think the risks associated with Euro swap lines are large. These are collateralized at the exchange rate prevailing on the date when the line is activated. So the idea that swaps are risky is a misperception. I do think swaps are important for enhancing the Euro’s attractions as a global currency. Foreign central banks will only feel comfortable about allowing firms and banks in their jurisdiction to borrow, hold and use Euros if they can act as Euro lenders of last resort. For that they need swaps.

As I understand it, the liquidity lines are designed to insulate the Euro Area’s own security markets from shocks from outside. If foreign central banks holding euro securities as reserves need cash, fire sales of those securities could destabilize Euro security markets. Liquidity lines allow those foreign central banks to repo their securities with the ECB, preventing market destabilization. This will make the ECB more comfortable about seeing foreign central banks accumulate euro reserves. It will make foreign central banks more comfortable in the belief that they can actually use those euro reserves.

And talking about FX swap lines, do you think the world should prepare itself for a moment where the US, for a reason or another, starts to treat the Dollar FX swap lines as a more political instrument than it has in the past? They were always a political instrument: The choice of countries that were eligible to these swaps during the GFC was a political decision. But do you expect a more political use of the swap lines to exert leverage? I can imagine, given recent tensions between the US and Europe, and given the acute need for dollar liquidity of the European financial system, the US could threaten Europe. Do you think we should prepare for these sorts of risks? And if so, what can we do to address them?

I’m not predicting that swap lines will be used as political leverage. Nor am I predicting that the Fed’s swap lines will disappear. But these are contingencies for which Europe must plan. It should look for sources of dollar liquidity other than the Fed, such as lines of credit with commercial banks. It can hold more Dollar or other reserves of its own. And it can tighten regulations on the dollar exposures of European banks and firms

I do worry, or at least wonder, about possibility number one, namely that a future Fed will feel pressure from the White House to provide swaps only to “America’s dearest friends,” such as Hungary and Argentina. And I do worry, or at least wonder, what Federal Reserve chair designate Kevin Walsh thinks about the Fed’s dollar swaps. He has said that he wants a smaller Fed balance sheet. Is this compatible with dollar swaps? He has said that he wants the Fed to get back to its knitting by focusing narrowly on its mandate. Is concern about the stability of the European financial institutions compatible with a narrow focus on the Fed’s mandate? All the more reason for the Euro Area to draw up contingency plans.

Europeans happen to have actually quite a limited amount of dollar on their central bank balance sheets. An alternative would be to consider arrangements with friendlier Asian central banks who happen to have a lot of dollars on their balance sheet, and have slightly less of a need for them than the European banking system. Would you advise that the Europeans strike some kind of agreement with the central banks of Korea, Taiwan or even potentially the PBoC, to get access to dollar liquidity if needed?

Another good contingency plan to pursue. But if there is a financial shock, will those Asian central banks insist on keeping their dollar reserves for themselves? I’m reminded of what happened in the United States during the Great Depression, in 1932-3. Every Federal Reserve Bank separately held its own gold reserves. When there was a run on banks in New York and the New York Fed needed gold, the Chicago Fed, which had bullion in excess, wouldn’t ship it to New York because it worried about needing it for a potential liquidity backstop to stem bank runs in its own district. I could imagine the same kind of dynamics playing out in your imagined relationship between the Euro Area and Asia.

So that might be a role for the BIS or for the IMF to play in organizing smooth dollar liquidity backstops if needed.

Absolutely.

_This paper was originally [published in Grand Continent](https://legrandcontinent.eu/fr/p/emmanuel-guerin/)_

The energy transition has entered a new phase. Though the climate emergency has not gone away, decarbonization is now under way in a world marked by war, geopolitical fragmentation, and the increasing weaponization of value chains. Far from calming rivalries, the impacts of the climate crisis are reshaping them. These impacts are shifting places of power, changing the instruments of power, and reordering global hierarchies.

The energy transition is creating a new interdependence, one that is both asymmetrical and hierarchical. It is not putting an end to territorial geopolitics, but complements it and sometimes supplants it with the geopolitics of value chains, industrial capacity, critical minerals, and regulations. We are witnessing the end of the green illusion.

Within this context the physical impacts of the climate crisis act as multipliers of conflict, affecting economic resilience, national stability, and the robustness of supply chains.

Faced with this reality, it would be wishful thinking to defend principles without giving ourselves the means to implement them. But it would be just as dangerous to confuse realism with cynicism. The primary questions therefore become: how do we think about the energy transition in the short-term in a world fraught with conflict? How can we manage competition in the medium term? And, in the long term, how can we reestablish the conditions for international cooperation, which will not resume spontaneously nor be as before?

1 — Ecology is a fundamental function of power

The geoeconomy was long structured around a relatively stable group of power variables: the size of an economy, industrial capacity, access to strategic resources, command of key technologies, financial and monetary power, as well as the ability to define trade rules and international norms.

Within this framework, energy already played a central role, though mainly as a factor of dependence or income, revolving around hydrocarbons, transport infrastructure, and territorial geopolitical balances. Rather than eliminating these interdependencies, globalization reinforced them by embedding them in complex value chains dominated by a few major industrial and financial powers

The climate crisis and the energy transition do not replace these traditional variables; they complement them as well as adding others. Industrial capacity becomes inseparable from the command of decarbonated technologies. Control of resources shifts towards critical minerals and, above all, towards intermediary segments of value chains. Regulatory power takes on a structural role in guiding markets and industrial trajectories.

Add to these dimensions factors which, until now, have been secondary in geoeconomy: the ability to finance the transition on a large scale, to insure growing risks linked to climate shocks, and maintaining the resilience of productive systems that are facing the physical impacts of climate change

These financial dimensions are not secondary; they profoundly shape the ability of economies to invest and absorb risk. Certain functions, long considered peripheral, are therefore emerging as critical touchpoints for the transition.

2 — Power is an invisible node

The insurance sector is a critical chokepoint that is often underestimated.

Insurance is a fundamental pillar of the financial system. Without insurance coverage, most large-scale energy projects — particularly offshore, mining, and heavy infrastructure projects — cannot obtain bank financing. Insurers thus play an invisible, structural role in energy capitalism.

If major insurance companies decided to stop covering new oil and gas exploration and production projects, a significant portion of fossil fuel investments would become unable to be financed or become prohibitively expensive in terms of capital costs. The gradual withdrawal of insurers from fossil fuels could therefore become a decisive lever for accelerating the transition.

By integrating these new touchpoints — whether industrial, such as the refining of critical minerals, or financial, such as insurance for energy projects — the energy transition reflects a deeper transformation of the contemporary geo-economy: it does not eliminate the traditional variables of power, but [reconfigures their hierarchy](https://legrandcontinent.eu/fr/2022/03/18/la-naissance-de-lecologie-de-guerre/) and shifts their centers of gravity.

The ability to control intermediary segments, manage risk financing, and ensure the resilience of production systems is now becoming just as crucial as owning the resources themselves.

3 — China is teaching us that transition is systemic

China understood this problem very early on. As early as 2006–2010 — with the official recognition of emerging strategic industries in its five-year plan — it made energy transition an explicit pillar of its strategy to move up the industrial value chain. This focus was then strengthened and accelerated starting in 2011 when these sectors became fully institutionalized priorities of Chinese economic policy.

[China’s advantage](https://legrandcontinent.eu/fr/2025/12/22/en-2025-les-exportations-de-technologies-propres-chinoises-ont-depasse-les-exportations-denergies-fossiles-americaines/#:~:text=La%20Chine%20occupe%20une%20place,le%20reste%20du%20monde%20r%C3%A9uni.) is not solely due to the volume of investment or subsidies. It is based on its early development of an integrated policy that covers the supply chain from start to finish, combining the securing of critical mineral supplies, developing refining and processing capacities, providing massive support to the manufacturing industry, implementing a targeted innovation policy, and coordinating the use of public and private financial instruments

Whereas Europe and the United States have long dealt with these issues in a fragmented way — treating energy, industry, trade, innovation, and finance separately — China has designed its transition as a coherent productive and financial system

. More than short-term cost advantages, it is this long-term strategic coherence that explains China’s dominant position in many key segments of the energy transition value chains today.

4 — Governing the transition means controlling its touchpoints

[Control over critical minerals](https://legrandcontinent.eu/fr/2025/08/28/le-fantasme-americain-face-a-lhegemonie-chinoise-geopolitique-des-mineraux-critiques/) is fully in line with this reasoning. Power does not lie solely in extraction. It is concentrated in the intermediate segments — refining, processing, component manufacturing — which constitute critical control points within value chains. These obligatory points of passage make it possible to restrict, slow down, or steer the entire production system, especially when combined with financial, trade, or regulatory instruments.

This rationale for controlling intermediate segments is not abstract. It becomes concrete in certain strategic value chains, where the concentration of industrial capacity creates systemic vulnerabilities.

Strategic vulnerability stems not only from the geographical concentration of mining resources, but above all from the concentration of refining and processing capacities. While the extraction of lithium and rare earths is relatively dispersed, China overwhelmingly dominates the intermediate segments of the value chains. According to the International Energy Agency, China controls around 60% of global lithium refining, 73% of cobalt and nearly 90% of rare earths.

This power over the various stages of processing is a real geoeconomic chokepoint: when tensions arise, control over these intermediate segments makes it possible to slow down or impose conditions on the entire global production of batteries, wind turbines, or electric vehicles. Vulnerability therefore lies less in the physical scarcity of minerals than in the concentration of critical industrial capacity

Regulatory power also plays a structuring role. Defining technical, environmental, or commercial standards effectively means organizing markets, guiding industrial development, and creating sustainable competitive advantages. Europe has a major asset in this regard, but it only produces strategic effects if it is linked to real industrial, financial, and technological capacity.

This geoeconomic reconfiguration is now compounded by a cross-cutting factor: climate resilience. The physical impacts of climate change — droughts, floods, water stress, extreme events — directly affect production capacities, infrastructure, supply chains, and financial systems.

Power is no longer measured solely in terms of GDP or military capabilities, but also in terms of the ability to absorb climate shocks and maintain the functioning of value chains in an increasingly unstable environment.

5 — Value chains have become weapons

The initial promise of a green globalization, in which climate interdependence would promote cooperation, has now been largely dashed. Today, the energy transition has become part of a dynamic of contentious fragmentation, with each bloc seeking to protect its own decarbonization trajectory

Transition value chains are becoming increasingly militarized in the sense that they are integrated into calculations of economic security and strategic rivalry

. Control of central nodes in economic networks allows for indirect coercion. The energy transition amplifies this dynamic by increasing technical and industrial dependencies.

This militarization comes at a cost. It makes the transition more expensive, delays technological rollout, and exacerbates inequalities in access to technology. But it has also become a political prerequisite for decarbonization. Without industrial policy, without secure supplies, without protection against external shocks, there is no sustainable political coalition in favor of the transition.

The United States is a prime example of this tension. Its trajectory in recent years reveals a power that is structurally bipolar: momentum under Obama, slowdown under Trump I, massive acceleration with the Inflation Reduction Act (IRA) under Biden, then a dramatic halt with Trump II. This instability weakens global value chains and reinforces the fragmentation of the system

6 — Europe can become the first electric republic

The climate has become a central battleground for global value chains, with decarbonization taking place amid tensions in an era of blocs. Each major power is seeking to reduce its vulnerabilities, secure its supplies, and control critical segments of the transition.

This dynamic does not concern only the major industrial powers. Countries rich in critical resources — Australia, Chile, Brazil, Canada, the Democratic Republic of Congo, South Africa, and Indonesia — occupy a new strategic position. But here again, the issue is not just access to raw materials. It is the capacity for processing, refining, and adding value that determines [true strategic autonomy](https://legrandcontinent.eu/fr/2025/08/21/le-pouvoir-des-alliances/).

Given this context, a clear distinction must be made between Europe’s dependence on fossil fuels and its dependence on carbon-free technologies.

The first is structural and irreversible.

The second is strategic and potentially reversible, as long as there is massive investment and coordination of industrial policies.

Europe could become a true electro-state, [if it agreed to pay the investment](https://legrandcontinent.eu/fr/2025/11/04/teresa-ribera-climat-europe/) costs.

For Europe, the way out of this situation does not lie in naive isolationism or resigned dependence. It lies in a clear power strategy based on levers that it already partly controls: the size of its internal market, its ability to define structural standards, the coordinated mobilization of its financial and budgetary instruments, and the reconstruction of a credible industrial base in key segments of the transition.

Alongside these strengths, there is a structural constraint — moving away from fossil fuels — which, far from being a handicap, has the potential to become the driving force behind a strategy for industrial and technological autonomy, provided that it is embraced politically

7 — We must learn to do to China what China has done to us

The European strategy towards China must be based on a realistic observation: the relationship combines partnership, competition, and systemic rivalry.

Partnership, because the energy transition and climate stabilization are global public goods for which no solution is possible without Sino-European cooperation. Competition, because the value chains of the transition have become a central arena for industrial and technological rivalry. Finally, systemic rivalry, because China is an ally of Russia and Europe of Ukraine.

For Europe, the challenge is therefore neither alignment nor decoupling, but rather the construction of a conditional strategic relationship based on clearly defined interests

In practical terms this means doing with China what China has done with Western industrial powers: making access to the European market conditional on majority European joint ventures, arranging meaningful technology transfers, requiring industrial production to be located in Europe, and ensuring that these partnerships are part of explicit decarbonization plans.

When it comes to trade, in addition to innovating, Europe must embrace selective openness, protecting strategic industrial segments and using its trade defense instruments when Chinese practices create structural imbalances. In terms of investment, it must combine strict screening of incoming investments in critical sectors with the ability to attract Chinese capital to clearly defined projects that are aligned with its industrial, climate, and technological priorities.

The goal is not to restrain China, but to restore balance to an asymmetrical relationship so that cooperation on the energy transition no longer results in ongoing strategic dependence.

8 — Our strategic interest lies in resisting the fossil power of the United States

Relations with the United States are another strategic challenge for the Union.

Washington can no longer be considered a reliable ally. The American administration’s overt hostility towards Europe, combined with its unabashed push for fossil fuels and dismantling of federal climate policies, calls for a realistic review of the transatlantic partnership.

Europe must accept that the United States is now acting as an offensive petro-state, ready to use energy, trade, and standards [as instruments of geopolitical pressure](http://v/).

Faced with this reality, the European strategy cannot be one of alignment or wait-and-see: it must take a firm stance, unambiguously defend its industrial and energy interests, and implement reciprocal measures whenever U.S. policies result in structural competitive imbalances that are detrimental to Europe’s transition.

9 — The battle for minerals is not won in the mines

At the same time, Europe must build long-term strategic partnerships with countries rich in critical resources, based not on extractive thinking, but on industrial co-investment, local processing, and value sharing. Europe’s regulatory power and the size of its market are decisive levers in this regard

In concrete terms, this means differentiated strategies depending on the metals and partners involved: with the Democratic Republic of Congo for cobalt, with Chile for copper, with Australia for lithium, with Indonesia for nickel, and with South Africa for key transition metals such as iridium, manganese, and platinum.

Finally, China remains a key player for certain strategic minerals and materials — notably dysprosium, neodymium, and graphite — which requires Europe to view these relationships not as simple trade exchanges, but as structural geoeconomic negotiations, incorporating investment, access to intermediate technologies, and securing value chains.

Whatever the case, the challenge is not just about access to raw materials, but the ability to work up the value chain, secure refining and processing, and make sure these partnerships fit into a coherent industrial and climate strategy.

10 — The transition is a battlefield

The energy transition can no longer be viewed as a simple environmental or technological undertaking. It has become a geopolitical reality which is reallocating power, reshaping dependencies, and transforming value chains into instruments of strategic rivalry.

Far from eliminating power dynamics, the transition is shifting them: away from territories and toward value chains, away from hydrocarbons and toward critical minerals, away from trade flows and toward industrial, financial, and regulatory control points

. In this fragmented world, decarbonization is progressing not despite conflict, but through it, under the constraints of power relations and climate shocks themselves.

The energy transition is creating hierarchical interdependence: dependencies are not disappearing, they are becoming more concentrated and asymmetrical. Power now lies in the ability to organize complete production systems, protect intermediate segments of value chains, define structural standards, and absorb climate shocks.

In this context, China appears to be the most consistent player, the United States an unstable and aggressive oil state, and Europe a potential power that is still underdeveloped, caught between dependence and potential autonomy. To consider the transition without taking this geoeonomic reality into account is to condemn oneself to strategic impotence.

11 — We can learn to tame rivalry

The current fragmentation of the international system does not inevitably lead to lasting chaos.

Even in a world of conflict, it is in the interests of the major powers to avoid unchecked escalation, which would drive up the cost of the energy transition and undermine their own industrial trajectories. The issue is therefore not one of returning to idealized cooperation, but rather of channeling rivalry around minimum rules, stabilization zones, and sectoral de-escalation mechanisms.

Controlled competition first requires that certain critical interdependencies become less ideological. In the energy transition’s value chains, not all segments have the same level of strategic sensitivity. Clearly identifying what is vital, strategic, and substitutable helps limit the temptation to engage in widespread militarization, which is costly and counterproductive. In the absence of trust in politics, a form of technical and industrial transparency can help reduce uncertainty and the risk of sudden disruptions.

Next, managing competition requires targeted, pragmatic, and reversible sectoral agreements. These may cover technical standards, rules for notifying export restrictions, or coordination mechanisms in the event of a shock to the supply of critical minerals. These arrangements are not based on a convergence of values, but on converging interests in the short and medium term: avoiding shortages, stabilizing markets, and preserving the credibility of decarbonization trajectories.

Finally, managing competition requires internal resilience. The more economies are able to absorb shocks — whether industrial, financial, or climatic — the less tempted they are to resort to extreme coercive measures. Investing in diversification of supply, industrial upgrading, and climate resilience is not just a defensive strategy: it is a prerequisite for systemic stability.

12 — Cooperation is not an illusion

In the long term, no sustainable energy transition is possible in a world of constant, unregulated rivalry.

Climate stabilization remains a global public good, and the physical effects of climate change will continue to affect established and emerging powers alike: international cooperation will therefore not disappear by fate, but it will not return spontaneously or in the forms inherited from the era of liberal globalization.

Any credible cooperation must be backed by a clear balance of power. Principles without instruments are ineffective. This means linking climate cooperation to real capabilities: financing, technology transfer, market access, as well as the ability to sanction predatory behavior. Post-carbon cooperation will be selective, conditional, and reversible.

Finally, this cooperation must take into account one key fact: the energy transition creates winners and losers, both within and between countries. Rebuilding a minimum level of international cooperation means addressing these asymmetries, particularly with regard to countries rich in critical resources and economies most exposed to climate shocks. Without credible mechanisms for sharing risks and benefits, conflict will remain the norm.

13 — Realism is not cynicism

In the short term, realism is essential. In a fragmented world plagued by war, strategic rivalry, and climate shocks, principles that are not backed by real implementation capabilities remain meaningless. Approaching the energy transition without considering industrial power, security of supply, and the resilience of value chains amounts to exposing oneself to long-term dependence and, therefore, a loss of sovereignty.

In the medium term, the challenge is not to eliminate conflict, but to channel it.

Transforming anarchic rivalry into more controlled competition requires identifying minimum rules, sectoral arrangements, and stabilization mechanisms capable of limiting spirals of coercion and fragmentation. This does not mean a return to harmonious cooperation, but rather strategic management of interdependencies, based on converging interests as well as accepted power relations.

Finally, in the longer term, no energy transition away from fossil fuels is possible without renewed international cooperation. This cooperation will not happen spontaneously, nor will it take the form of past globalization. It will have to be built patiently, based on a clear understanding of the power shifts brought about by the energy transition and recognition of our now shared climate vulnerabilities.

Realism without a plan for change turns into cynicism. But initiative without a strategic foundation turns into powerlessness. Considering the energy transition today means accepting these two requirements together.

_The original version of this article was published in the Grand Continent journal and [is available at this link](https://legrandcontinent.eu/fr/2026/02/16/le-non-alignement-a-lere-de-lia/)_

Starting from the common ground: the case for a global stack

As President Macron said recently, Europe is at an existential moment. In fact, the whole world faces an existential moment. How to direct – or rein in where needed – AI development is one of the most important questions we face today.

In the run-up to the AI Impact Summit in Delhi, states, industry, civil society and other stakeholders have an opportunity to build a new, non-aligned movement around the core tenets of open, resilient and collaborative AI. Drawing inspiration from the Non-Aligned Movement of countries seeking to remain neutral in the Cold War through the 1950s and 60s, this initiative seeks to provide an answer to the core question of AI sovereignty – who controls and has agency over AI?

Before asking where, when and how countries can exercise control and agency, to build and deliver AI that truly furthers human and public interests, we must first understand what the AI stack is.

The AI stack is the hierarchy of components required to build, run and scale AI applications.

It is composed of:

— the infrastructure layer (the hardware (e.g. GPUs) and the cloud platforms they run on (e.g. services like AWS)),

— the model layer (the models themselves such as GPT-4 or Claude and the tools to service them),

— the data layer (the information used to train and run the models), and finally

— the application layer where the model meets its audience, whether public or professional.

Controlling all these layers is, for almost all countries, impossible as it is both prohibitively expensive, and access to technology, expertise and energy remains unevenly distributed. A country might want its own chips, data centers, models and applications but in practice, costs and efficiencies of scale make this neither practical nor desirable.

Yet countries and their people need and want AI to be highly specific to their history, their culture, and finely tuned to public interest needs and outcomes, that are inherently contextual.

How can we achieve this?

First, we must recognize that open stacks are smarter, more resilient stacks. Openness in artificial intelligence, here defined as AI models that are freely available to use, study, modify and share, models which combine elements of open science, open innovation, open data and open source, enables this third way. Open stacks allow middle powers (any interested powers) to capture the social, economic and political value of AI.

Second, it is clear that no country apart from China and the US can aspire to have a fully sovereign stack, where sovereignty is defined as agency and control over all aspects of the stack, the different stages of producing key AI applications.

In fact, nor should they want it. Why fight it? Embrace it. The aim should not be a national, sovereign stack, but a global, open, resilient, non-aligned stack, adaptable to the unique needs of each country.

France, Germany, Nigeria, India and Morocco have more in common than that which divides them when it comes to AI. Any of the middle powers have more in common with each other than they share with the US or China.

And that is the common ground we must start from.

The other definition of sovereignty

Most discussions on AI sovereignty get it wrong.

Think of sovereignty along an axis going from fragility to resilience. The more open the stack, the more resilient it is. The less open it is, the more it depends on the choices of a few actors, the more fragile any country’s position is vis a vis this crucial technology. Sovereignty does not mean full control or ownership but resilience, sharing the pieces that can be shared, and owning the pieces that can be owned.

They get it wrong because they overfocus on the ‘bricks and mortar’ side of AI infrastructure such as building data centers. These are the necessary but not sufficient condition for public interest AI to thrive. What matters is how they are used, who uses them, the availability and accessibility of high-quality data to power them. For example, if we are ever to find a cure for breast cancer (beyond increasing the likelihood of detection and prevention, where progress has been made), models will need privacy-preserving access to patient treatment outcome data and likely also to genetic data. For patients to be comfortable providing that information, they will need to trust that the system will respect their rights and not use this data against them in their daily lives, be it insurance rates, mortgage applications or their workplace security. We are nowhere near this stage, where data centers are powered by locally relevant, trusted data.

How does this relate to sovereignty? The impulse behind the quest for sovereignty in AI is the right one. The push for AI sovereignty is driven by governments and the private sector’s shared realization that dependence on major foreign technology actors is a critical vulnerability, but it is not limited to that. The public is asking for it as well. The public is increasingly demanding choice and agency when it comes to the technologies shaping everyday life and work. To respond to these needs, AI sovereignty must go beyond national security and competitiveness, prioritizing the public’s demand for open, privacy-respecting technologies that do not lock them in, but rather empower them, as users. This will enable everyday users to benefit from the same controls and agency over data about them that technology companies regularly provide to enterprise users.

Critics will say that sovereignty is a barrier to innovation, or equivalent to erecting walls that make it harder to use technology. Defining sovereignty as the opposite of innovation and flexibility of use is an attractive sleight of hand. Buying proprietary products and getting locked in to vendor agreements you cannot control is not innovative. It is monopolistic. And monopolies kill innovation.

Making the right choices

AI models are commodities

For comparable capabilities, AI models are well on the way to becoming commoditised. Regardless of who produces them, whether OpenAI, Anthropic or any of the other players in the field, a certain uniform quality has emerged over the past 12 months. There are important differences at the frontier, but for most specific, contextual public interest applications, the model is less important than the product layer. The differentiator comes at the application layer when the products are developed that businesses and the public use. The value lies in those products and services. To succeed, to deliver demonstrable improvements in people’s lives, all countries will need access both to locally relevant, accessible and high quality national and international datasets, as well as to off-the-shelf solutions across a shared, global, open stack.

Beyond computing power: data, open source, and smaller models

Compute is a national and international obsession due to so-called scaling laws, which posit that the bigger the models, the more compute, the more data, the more powerful the model will be. A debate rages as to whether scaling laws still apply

. Regardless, these are mostly applicable for frontier applications, at the bleeding age of AI development. For most contextual applications, what matters is – a certain amount of compute of course – but crucially investment in data and investment in open source

Innovation in data

Innovation in compute has been staggering over the past ten years. GPU price to performance has doubled roughly every two years over the past ten years. In contrast, innovation in data – how to access, make available and use data, including personal data, in ways that people find safe and trustworthy has largely plateaued and needs investment. Experts are debating collaborative approaches to data sharing, be they data trusts or other forms of data stewardship

, but few if any have reached the scale needed to make an impact. Investment is critically needed, both on the technical side (how to separate the data from the model) and on the governance side (how to ensure group data sharing is trusted by those sharing it).

Investment in open source

The same is true of open source. For all the talk of how critical open source is to the AI stack and ecosystem, the sector is massively under-invested . As with open source software, the top-tier of open source AI development will be funded by the largest company users, omitting a bottom tier of critical dependencies, almost entirely supported by volunteers. A few groups stand out, such as ROOST

, a non-profit providing open trust and safety tooling, but these remain the exception to the rule. Investment here is key.

Going through the stack

For middle powers, sovereignty is not about recreating the whole AI value chain at home. It is about working together and identifying which of the building blocks that make up the AI stack – the hardware, the infrastructure, the model, the applications – should and can be open

, which need international cooperation and how, which do actually need to be developed at home and what is needed for that domestic development to succeed.

States should embrace their market-shaping role, proactively identifying the parts of the AI stack that have to be and can realistically be sovereign, those where it is acceptable or perhaps temporarily inevitable that they are not (e.g. where the risk of relying on foreign suppliers for digital services is actually smaller than the cost of reducing the dependence), and those parts of the stack that should be open-sourced. In some cases, the state can and should exercise sovereignty by opening the market, like the UK did with open data and open banking

, not closing it. The move should be to commodify the sovereign stack so that anyone can have access to the tools and data to build new models.

This is the task at hand at the forthcoming AI Impact summit.

The geopolitics of AI: towards a new non-alignment

For this to happen, the AI field needs three things. The good news is we already have two of these.

First, we need the platforms to foster those international exchanges, platforms such as Current AI

, which was launched a year ago at the AI Action Summit in Paris and brings together the developer community, private sector, government and philanthropy towards building a collective, collaborative and independent vision for AI.. These need a commensurate scale of resources and talent in order to build technology that serves the public interest.

Second, we need the tools and investment in open source and in data innovation to power this realignment. Again the good news is that many organizations originally focusing on open source software already exist and can be supported.

Finally, thirdly, countries will need to identify new forms of international cooperation that, rather than fueling rivalry and competition, help medium-sized powers to unite in order to build a resilient, open, and non-aligned stack.

Our geopolitical use of the term alignment has a different meaning from the term « AI alignment »: an « aligned » AI is a term specific to the « AI safety » movement, technology that does what its designers intend it to do. We believe that truly contextual AI, producing tangible improvements in people’s lives, can only be achieved by breaking out of the monopolistic orbit of technology giants, and by abandoning the myth of a completely national sovereign stack.

When it comes to AI, collaboration, geopolitical non-alignment is necessary in order to produce AI that serves the public interest, with results and purposes that benefit humanity.

This is about showing, not telling, that AI can be a new tool to bring countries together, rather than pulling them apart. This is where the AI Summit series has a crucial role to play, passing the baton from one year to the next, building on each other and contributing to the coherence, rather than the fragmentation, of global AI governance and infrastructure.

For AI, this is the answer to Mark Carney’s acclaimed call to middle powers in Davos.

This is not about not choosing sides, but rather creating choice and agency so that many mutually beneficial partnerships can flourish. Today’s third way in AI takes traditional non-alignment further by focusing on building multiple avenues and connections to build an open, resilient, and non-aligned AI.

In December 2019 the European Commission presented the Green Deal as a sweeping programme to make the EU climate-neutral by 2050, while boosting competitiveness and social inclusion

. It was probably the most comprehensive policy effort to turn the ambition of the Paris Agreement of 2015 into a policy reality and helped solidify climate policy efforts globally

. The Green Deal was multifaceted but centered around several key elements: tighter corporate sustainability disclosures designed to help markets guide capital towards a faster transition; a ban (or near-ban) on new petrol/diesel cars by 2035; an expanded emissions-trading schemes to continue to deliver clearer price signal to accelerate abatement away from emitting activities; and a rapid scale-up of renewable energy infrastructure and capacity. To this, a set of green industrial policy initiatives were added later on ‒ from the Net-Zero Industry Act to the Clean Industrial Deal ‒ aimed at anchoring clean-tech manufacturing in Europe. The RepowerEU programme announced after the start of the war in Ukraine and the ensuing energy crisis was designed to accelerate energy transition and link it to energy resilience and Europe’s security goals. This contributed to tie Europe’s climate ambition, its industrial renewal and its geopolitical imperatives and to turn Europe’s climate policy into a critical positive geopolitical externality.

Six years later, as the last COP30 winds down, it is critical to take stock. Sadly, the entire European climate agenda and strategy might be unravelling with profound consequences not only for Europe’s economy and its climate objectives but more broadly for the world, especially after the US has clearly signalled its departure from the Paris Climate Agreement and more generally from any decarbonisation effort

and has become openly hostile to Europe and global efforts towards decarbonisation. Europe’s place in global climate diplomacy has always been central in part because of its ability to lead by example, but the slow, since the eruption of the US’ Inflation Reduction Act and then sudden, since the election of Donald Trump, erosion of some of the key pillars of its approach and strategy requires a new clear-eyed appraisal in order to devise a new approach.

Corporate disclosure and greening via price signals

From the start, the Green Deal emphasised that sustainable finance including reporting was foundational because it would essentially guide private capital flows away from brown activities and towards greener activities. The premise of disclosure was a firm belief in market forces and price signals to deliver the private sector incentives and impetus for the transition and achieve a least cost abatement and especially a least cost transition for the public sector. The Corporate Sustainability Reporting Directive

(CSRD), due-diligence Directive (CSDDD

) and the Sustainable Finance Taxonomy

all aimed to guide private finance towards green finance. But in early 2025 the Commission proposed an omnibus “simplification” package which marked a profound intellectual shift and a significant watering-down of those disclosure regimes.

More concretely: The package proposes to exempt about 80 % of companies from mandatory sustainability disclosures under the CSRD. According to major investor groups who had heavily invested on the basis of this new guidance, this represents a serious risk to the integrity of the EU’s sustainable-finance architecture

. In short: a key plank of the Green Deal — the disclosure-based re-routing of investment — is being diluted under competitive pressure because of the fear that lacking sustainable reporting in the US will retain investors or divert new capital to the American market rather than to the European one. This is also compounded by pressure from the United States or fossil fuel suppliers like Qatar who don’t want money to be diverted away from fossil fuel purchase and don’t want US companies to be exposed to climate litigation risks turbo-charged by extensive disclosure schemes.

The end of the 2035 internal combustion engine ban

One of the most politically visible policies of the Green Deal was the plan to effectively ban the sale of new Internal Combustion Engines (ICE) (petrol/diesel) cars across the EU by 2035. In March 2023 the regulation

, was adopted requiring a 100 % reduction in CO₂ emissions for new passenger cars and vans from 2035. This was secured after heroic battles against the car lobby

. The automotive sector quickly submitted a draft plan calling for a 90 % rather than 100 % reduction, plus retaining long-range plug-in hybrids after 2035 and the election of Friedrich Merz in Germany installed a champion of the car industry who pledged to do everything to soften the ban

. Meanwhile, the European car industry was facing brutal competition from Chinese Electric Vehicles (EV) makers and exposing their inability to compete neither on price nor quality for advanced electric vehicles

. In September 2024,  Italy and Germany joined manufacturers in calling for a review of the 2035 ban and the recognition of e-fuels (synthetic/renewable fuels) as an alternative to full electric

. In October 2025 the European Parliament logged a written question on the Review of the 2035 de-facto ban on combustion engines

. The European Commission has proposed a review and an amendment by December of 2026

. What is emerging is clear, exemption for e-fuels with a loose definition of what these are, exemption for long-range plug-in hybrid vehicles and possibly even some phasing in, even though optically the 2035 will remain. This step backward is a disastrous signal and more importantly it will discourage European auto-makers from making the necessary investment to accelerate their electrification precisely at a time when the EU needs to devise a new long term industrial strategy to support a sector that is critical to Europe’s industrial future. As such, Europe is self-sabotaging its transition towards clean transport and increasing the chances that China will dominate the EV market of tomorrow, which is undoubtedly dominated by a shift in demand for EV even in emerging/developing economies with limited levels of electrification. This will be presented as striking a better balance between competitiveness and transition, but it will only provide a slower transition and less competitiveness in the medium term.

Lowering emission-reduction targets

The Green Deal originally rested on interim targets in 2030 and 2040 and a pathway to net-zero by 2050 but there are growing tensions around these targets. As per the current central scenario under current policy the EU may achieve a 47 % reduction in energy-related emissions by 2030 (vs. the planned 55 % in “Fit-for-55”) and net-zero may now only be achieved by slip  to 2060

. Over the same period, Chinese emissions that were supposed to peak only in 2030 have already started declining fast

. In effect, the coherence of the EU pathway from near-term target to net-zero is under substantial strain. Additionally, ahead of the COP30 the European Council  has essentially quietly loosened the targets, allowing EU countries to make up 5% of their emissions reductions targets through carbon credits—effectively lowering the overall target to 85% by 2040

As a result, a new target for the EU is proposed to cut emissions by between 66.25% and 72.5% by 2035

but the agreement needs to be agreed in trilogue negotiations by members of the European Parliament and by the Council starting December 9.   before it can come into force, which could result in yet further loosening.

The slow death of carbon pricing and taxing

The reality however is that these efforts are fundamentally tied to Europe’s cornerstone climate policy, its emission trading scheme. Pricing and taxing carbon has long been Europe’s central strategy from which derives others, like disclosure. In strict economic terms, this is undoubtedly the strategy with lower abatement cost and the most effective path to decarbonisation. In real life, it is marred with social and political challenges that are proving hard to overcome

. In particular, the general idea of Europe’s ETS is that it would, by way of the promising work of the COP, lead to a more generalised adoption of carbon taxing and pricing schemes globally helping the world to slowly converge towards a global carbon price. This neat intellectual economic construct is however under attack and there has been not only pressure by the US but increasingly by other emerging economies like China and India who are resisting the roll out of CBAM due early in 2026 and which is central to the industrial competitiveness of the European economy

. The last COP is particularly worrying in this sense as the last paragraph of the agreement refer to the risks posed by « arbitrary discriminations or trade restrictions » and calls for the WTO to be more involved in future meetings suggesting a broad coalition is being forged against CBAM.

The US has no intention to adopt a carbon pricing scheme and China has one in name only. In addition, the US has been fighting tooth and nail against the EU’s Carbon Borden Adjustment Mechanism, which is critical to the survival of Europe’s ETS in the long term. As a result of these challenges, European industries –along US firms, which is rare– are lobbying for a review of the ETS mechanism and eventually and very likely for more free allocation and a lower carbon price. There is every reason to believe that the review of the ETS due in 2026 will deliver some accommodation and the roll out of CBAM will be an important test.

More importantly maybe, the ETS is designed to be expanded to new sectors in 2027 covering in particular housing, construction and transport. This is liable to create a direct shock to consumers and the climate social fund created to address the redistributional dimension of the shock seems unfit for purpose

. In July 2024, the Commission launched infringement proceedings against 26 Member States for failing to transpose the ETS2 provisions on time, but there are now pressing demands by Member States to review the directive and delay or accommodate the entry into force. On November 6, the Council agreed to delay the entry into force to 2028, which now needs approval of the other co-legislators.

But it is very likely that the Commission will have to take a very significant step back, which would mark yet another blow to its climate ambition and more significantly to the philosophical underpinning of Europe’s transition strategy. Indeed, what appears ever more clearly is that the economicist driven strategy relying on carbon pricing is reaching an impasse and that a new approach rooted in subsidies, industrial policy and energy integration and planification is yet to emerge

Green industrial policy is still looking for a framework

Almost all climate strategies depend on rapid expansion of renewables but the EU is failing on all dimensions. A report by SolarPower Europe shows that implementation of the revised Renewable Energy Directive (RED III) remains weak: in many Member States the rate of transposition is under 50 % more than a year after the deadline

. Grids, interconnectors are material constraints to greater build out and the Renewable targets are being missed by several countries. Hence, although deployment continues, the pace and systemic readiness (grid, infrastructure, supply-chain) are far behind what the Green Deal initially envisioned and there is real hope for a breakthrough.

The RepowerEU plan announced at the height of the energy crisis when the war in Ukraine started has barely moved the needle in delivering faster investment on critical infrastructures. On the whole, the EU seems to continue to battle setting out a clear framework for action. The launch of the Inflation Reduction Act in 2023 in the United States has provoked an awakening but has not led to a clear plan. The EU’s green industrial policy remains marred by a lack of centralized public funding, which is usually resolved by weakening of State Aid rules to enable national support schemes along poorly harmonized principles

. Some EU-level frameworks, like the IPCEI could provide an important venue but have been under-utlized.

In addition, the EU seems to be suffering from an enforcement crisis that is weakening the reach and breadth of its regulatory power related to the transition

. The most illustrative case in point might be the EU’s effort to build out an indigenous battery supply chain and production capacity, which is essential for the EV industry as well as for Europe’s storage efforts more broadly. Without battery, no EV and no balanced grid dominated by renewables. What is striking here is that Europe’s efforts have been piecemeal and disjointed, ranging from high level of subsidies, low environment and local content rules for Hungary’s giga factory plan, to the most environmentally compliant one in Sweden with Northvolt, which eventually failed

. Short-term goals of securing output and jobs often clash with longer-term ambitions of upgrading and value capture. For example, in the critical area of electricity storage and transport, Brussels has never operationalised what counts as a “European” battery industry ‒ whether loosely conditioned foreign investment suffices, or whether domestic ownership, control and supply chains are essential. After Northvolt’s collapse, many member states and firms pivoted back to Korean and Chinese FDI; yet without robust and even technology-transfer, subsidies, environmental conditions, this risks locking Europe into low value-added assembly roles and will intensify cannibalisation between European efforts without a minimal level playing field enforcement.

Domestic champions must now compete with generously subsidised foreign incumbents inside the same single market. What is striking here is that European countries have shown no coordination, consistent or coherent approach, which has clearly resulted in disastrous results that are jeopardising the entire supply chain and the whole transition.

A the transition trilemma and the dawn of a new climate policy

Europe is in effect captive of a critical policy trilemma. It cannot possibly achieve its (i) ambitious emission reduction targets, (ii) strategic autonomy and (iii) industrial competitiveness. There are fundamental trade-offs between these three announced policy objectives and no clear framework for resolving them. As a result of these tensions, the danger is that the EU is liable to compromise on all and achieve none. These tensions are amplified by the EU’s tendency to articulate broad goals without operationalising them or defining their priority ‒ a vagueness that leaves member states to default to low-road strategies.

We believe it is critical for Europe to assess thoroughly where its climate policy currently stands, where it is failing and where a new approach is required. The current combination of denial and delusion is straying Europe away from a new policy approach that appears both necessary and accessible. A new European climate policy strategy would recognize that while carbon pricing and taxing is unambiguously the least cost strategy, it is also the most socially and politically taxing and therefore it needs at minimum to be complemented with an ambitious subsidies and social support policy that has been entirely missing. The central reason why it is missing is because Europe currently lacks the centralized fiscal resources to deliver on subsidies and social support.

The EU must shift from a dying technocratic climate policy paradigm towards a new one with green industrial and social policy at its heart, but doing so effectively requires loosening several dogmas: limits on the scope and use of industrial policy, unqualified openness to trade, the restrictions on fiscal support ‒ and as a result, recognising that more fiscal policy integration will most certainly be needed. Indeed, the green transition will not take off without large-scale public investment and generous deployment incentives, and this spending push must be paired with buy-European provisions and a clear, predictable and paneuropean industrial policy framework. With external demand drying up, Europe now has no choice but to rebalance towards domestic demand to avoid stagnation and unemployment ‒ a shift that makes demand support not just desirable but unavoidable.

At the same time, spending will not do the trick on its own. The transition is unfolding under the shadow of overwhelming Chinese dominance in net-zero technologies. Solar, wind, and batteries ‒ once imagined as engines of European green growth ‒ are now sectors in which heavily subsidised Chinese firms hold a significant competitiveness lead, raising the danger that European industrial strategies simply “leak out” into imports. The instinctive reaction is to retreat from greening altogether, but there is a better alternative: coordinating industrial rollout with strong, targeted deployment incentives. China itself has demonstrated how demand-side incentives can scale up domestic industry, and France’s “eco-bonus” scheme ‒ functioning as a de facto local-content rule for EVs ‒ offers a promising European template, with proposals emerging to extend it at the EU level.

The challenge is to strike a careful balance: preserving the welfare benefits of trade, which matter especially for fiscally constrained poorer member states, while still nurturing infant industries in high-innovation sectors, protecting manufacturing employment, and safeguarding technological sovereignty in an era of weaponised trade.

While there are certain areas of the green industrial supply chains that are now lost for good like the solar and perhaps parts of the wind industry. Europe must preserve the auto-sector and the nascent battery one for its role in the European industrial supply chains is too critical to be lost. Indeed, without the auto-sector, probably half of the entire European industrial sector could be at risk creating even greater vulnerabilities for the European defense industrial base. Saving autos can probably only be achieved through a systematic combination of regulatory constraints and fiscal support: Joint Ventures (JV) and technology transfer agreements and public subsidies must be harmonized to avoid the sort of cannibalisation the EU has observed in the battery ecosystem for example. This requires the EU to adopt a central planner approach that it has so far been reluctant to undertake. The European Industrial Accelerator Act to be announced in January 2026 (rather than in December 2025) could be the opportunity of a new European industrial policy and the activation of new trade protection instruments. But in order to be effective, it will certainly require new approaches to competition policy and more fiscal resources. This is central economic and climate policy challenge of the coming years.Overall, there is no reason for Europe to entirely give up on all of the three points of the trilemma but in certain areas, the EU needs to clarify how it will preserve industrial competitiveness, strategic autonomy or its emission targets, and where it will allow to give in on one to preserve the two others. This is an urgent task to save Europe’s climate ambition, to preserve its industrial competitiveness when it can and to achieve some level of strategic autonomy where it must.

From its inception, the architecture of the EU embodied the belief that international rule of law, upheld by credible institutions, fosters peace and prosperity.

Since no European state retained the capacity to defend itself alone, our security doctrine was shaped by the protection afforded by America. Together, and always in alliance with the US, we were able to face any threat and deliver peace within Europe.

And with our security guaranteed and trade flowing mainly within that alliance, we could safely pursue economic openness as the basis of our prosperity and influence.

But the now defunct global order did not fail because it was built on illusion.

It delivered real and widely shared gains: for the US, as hegemon, via unquestioned influence in all domains and the privilege of issuing the world’s reserve currency; for Europe through deep trade integration and unprecedented stability; and for developing countries through participation in the global economy, lifting billions out of poverty.

The system’s failure lies in what it could not correct.

Once China joined the WTO, the boundaries of trade and security began to diverge. We had always traded beyond the alliance, but never before with a country of such scale, and with ambitions to become a separate pole itself.

Global trade drifted away from Ricardo’s principle that exchange should follow comparative advantage. Some states pursued absolute advantage through mercantilist strategies, forcing deindustrialisation onto others, while the gains that remained were unequally shared. This sowed the political backlash we now face.

At the same time, deep integration created dependencies that could be abused when not all partners were allies. Interdependence, once seen as a source of mutual restraint, became a source of leverage and control.

Multilateral governance had no mechanism to address imbalances, and no language to acknowledge dependencies. Faith in the mutual gains of trade made the very idea of weaponised dependence unthinkable.

But the collapse of this order is not itself the threat. A world with less trade and weaker rules would be painful, but Europe would adapt. The threat is what replaces it.

We face a US that, at least in its current posture, emphasises the costs it has borne while ignoring the benefits it has reaped. It is imposing tariffs on Europe, threatening our territorial interests, and making clear, for the first time, that it sees European political fragmentation as serving its interests.

We face a China that controls critical nodes in global supply chains and is willing to exploit that leverage: flooding markets, withholding critical inputs, forcing others to bear the cost of its own imbalances.

This is a future in which Europe risks becoming subordinated, divided, and deindustrialised—at once. And a Europe that cannot defend its interests will not preserve its values for long.

The transition from this order to whatever lies next will not be easy for Europe.

We will face a long period in which interdependencies persist even as rivalries intensify. We remain heavily dependent on the US for energy, technology and defence. China supplies over 90% of our rare earth imports, and dominates the global solar and battery value chains that underpin our green transition.

In this period, the best path for Europe is the one it is now pursuing: to conclude trade agreements with like-minded partners that offer diversification, and to deepen our position in supply chains where we are already critical.

This is where Europe has power today. In 2023, the EU was the world’s largest exporter and importer of goods and services, with imports from the rest of the world totalling €3.6 trillion. It is also the largest trading partner of more than 70 countries.

And we hold critical positions in several strategic industries. European firms control 100% of extreme ultraviolet lithography, the technology required to make advanced chips. We produce half the world’s commercial aircraft. We design the engines that power the vast majority of global shipping.

In this context, it is wrong to think of trade agreements primarily in terms of growth. Their purpose now is strategic: to strengthen our position and realign our relationships now that trade and security no longer fully overlap.

But this is a holding strategy, not a destination.

Individually, most EU countries are not even middle powers capable of navigating this new order by forming coalitions—each bringing distinctive assets to the table, whether raw materials, technological niches or strategic geography.

But collectively, we have something greater: scale, wealth, political culture, and 75 years of building the institutions of a common project.

Of all those now caught between the US and China, Europeans alone have the option to become a genuine power themselves.

So we must decide: do we remain merely a large market, subject to the priorities of others? Or do we take the steps necessary to become one power?

But let us be clear: grouping together small countries does not automatically produce a powerful bloc. This is the logic of confederation—the logic by which Europe still operates in defence, in foreign policy, in fiscal matters.

This model does not produce power. A group of states that coordinates remains a group of states—each with a veto, each with a separate calculus, each vulnerable to being picked off one by one.

Power requires Europe to move from confederation to federation.

Where Europe has federated—on trade, on competition, on the single market, on monetary policy—we are respected as a power and negotiate as one. We see this today in the successful trade agreements being negotiated with India and Latin America.

Where we have not—on defence, on industrial policy, on foreign affairs—we are treated as a loose assembly of middle-sized states, to be divided and dealt with accordingly.

And where trade and security intersect, our strengths cannot protect our weaknesses. A Europe unified on trade but fragmented on defence will find its commercial power leveraged against its security dependence—as is happening now.

Some will say that we should not act until our position is stronger, until we are more unified, until escalation is less costly.

But this trade-off is illusory. It is only by moving that we create the conditions to act more decisively later. Unity does not precede action; it is forged by taking consequential decisions together, by the shared experience and solidarity they create, and by discovering that we can bear the result.

Consider Greenland. The decision to resist rather than accommodate required Europe to carry out a genuine strategic assessment—to map our leverage, identify our tools and think through the consequences of escalation.

The willingness to act forced clarity about the capacity to act.

And by standing together in the face of a direct threat, Europeans discovered a solidarity that had previously seemed out of reach. The shared resolve resonated with the public in ways that no summit communiqué could have achieved.

At the same time, building collective strength will not be the same for Europe as it has been for China, or now looks to be for the US.

The US, in its current posture, seeks dominance together with partnership. China sustains its growth model by exporting its costs onto others. European integration is built differently: not on force, but common will; not on subjugation, but shared benefit.

It is integration without subordination—vastly preferable, but vastly more difficult.

This demands a different approach. I have called it « pragmatic federalism. »

Pragmatic, because we must take the steps that are currently possible, with the partners who are currently willing, in the domains where progress can currently be made.

But federalism, because the destination matters. Common action and the mutual trust it creates must eventually become the foundation for institutions with real decision-making power—institutions able to act decisively in all circumstances.

This approach breaks the impasse we face today, and it does so without subordinating anyone. Member states opt in. The door remains open to others, but not to those who would undermine common purpose. We do not have to sacrifice our values to achieve power.

The euro is the most successful example. Those who were willing went ahead, built common institutions with real authority, and through that shared commitment, forged a solidarity deeper than any treaty could have prescribed. And since then, nine more countries have chosen to join.

This will not be a straight path. As Schuman said in 1950, Europe will not be made all at once. Not all countries will join every initiative from the outset, whether in energy, technology, defence, or external policy. But every step must remain anchored in the goal: not looser cooperation, but genuine federation.

Some may delude themselves that the world has not really changed, or that geography makes them immune. Some may believe that surrendering economic independence, or even territory, does not threaten their ability to preserve the values that define us.

That should not stop the more clear-sighted from forging ahead. We are all in the same position of vulnerability, whether we see it yet or not. The old divisions that paralysed us have been overtaken by a common threat.

But threat alone will not sustain us. What began in fear must continue in hope.

As we act together, we will rediscover something that has long been dormant: our pride, our self-confidence, our belief in our own future.

And on that foundation, Europe will be built.