BRUSSELS — For the European Union, real war has been muscled out by an artificially created trade one — and that’s a problem.
Governments would rather be trying to resolve the first, in which Ukraine is still trying to fend off Russian aggression in the face of U.S. apathy. Instead, it’s the second, with tariff retaliation and people “getting yippy,” that’s consuming energies.
When the bloc’s 27 finance ministers and central bankers huddle in the Polish Army Museum in Warsaw from Thursday to Saturday, it’ll be for the first time since U.S. President Donald Trump announced sweeping tariffs against foreign countries including those in Europe.
And while Trump has announced a 90-day pause, the beard-stroking, the plotting over whether or not to retaliate, and the calculations over how Europe places itself between America and China, will see no such hiatus.
With Russia’s grinding land war in Ukraine gnawing at its borders, Poland — which is organizing the meeting in its role as holder of the rotating presidency of the Council of the EU — wanted to build momentum around a massive new rearmament fund open to non-EU countries such as the U.K. and Norway.
“From a Polish perspective, the timing of Trump’s tariffs is not ideal because they wanted the informal meeting to be all about defense,” said an EU diplomat who, like others quoted in this story, was granted anonymity to talk about sensitive discussions.
The 90-day pause provides breathing room for Brussels to kickstart negotiations with Washington and — in the meantime — prepare for the worst.
“We should be like Buddha: calm, focused and have a strategic response,” said a second EU diplomat.
“We can now strategize and have 90 days to prepare ourselves in case there is no agreement with the Americans.”
Steel and aluminum
Despite the temporary reprieve, European capitals are wargaming the consequences of a full-blown trade war with the U.S that might dent growth and lead to job losses.
During the pause, the baseline U.S. 10 percent tariff ― as opposed to the 20 percent rate Trump said he would apply to the EU ― and the separate and previously announced steel, aluminum and car levies will remain in place.
Officials signaled lingering concerns that the wealth divide among EU countries might grow if more affluent governments bail out companies that are hit by the trade war while less prosperous nations have little leeway to do so.
“Not every member state has the same fiscal space,” said the second EU diplomat. “That’s why we were approached by some member states to have this discussion on national reactions.”
To limit disparities within Europe, Spanish Finance Minister Carlos Cuerpo suggested using the revenues from new tariffs to compensate businesses across the entire continent.
His Italian counterpart, Giancarlo Giorgetti, called for a halt to the EU’s strict spending rules ― but most other countries consider this a difficult request.
Officials signaled that these back-up options will dominate corridor chats in Warsaw.
“What we are going to move towards is the global trade war, which reduces global growth, reduces the ability of countries to keep inflation under control,” Fabian Zuleeg, the chief executive of the European Policy Center think tank, said before Trump reversed course. “So what we’re seeing is a global downturn.”
The real war
Increased tensions between the U.S. and Europe are also pushing countries that take a hard line on defense, such as Poland and the U.K., to explore alternative ideas to strengthen their military sectors.
Outlined in an informal proposal by the Bruegel think tank in Brussels, Warsaw supports creating a new rearmament fund to buy weapons together. A handful of northern countries — Sweden, Denmark, Finland and the Netherlands — as well as the U.K. have been involved in preliminary secret talks about a similar plan devised by the British Treasury.
The idea comes on top of a separate Commission initiative to offer EU countries more fiscal flexibility and €150 billion in defense loans. Unlike the Commission scheme, the rearmament fund is immediately open to the U.K. and potentially other non-EU countries.
In a sign of openness to the project, the U.K. as well as Norway and Switzerland — two affluent non-EU countries with a precious and rare triple-A rating, which underscores their ability to borrow money — will join the gathering.
But EU governments remain deeply divided on this idea because southern countries that are far away from Russia are reluctant to significantly increase their spending on defense.
“This proposal won’t gain any traction, there is no point in discussing it,” said a third EU diplomat.
“It is not a silver bullet for countries such as France, with a reduced fiscal space, but it will help to achieve in three years what we would achieve in 10,” said another EU diplomat.
Highly indebted governments support EU common borrowing instead of loans.
“We are very close to the moment when some form of common borrowing becomes inevitable,” Zuleeg said.
“The risk of Russia does not go away, regardless of what happens in the economy.”
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