The EU has moved through the stages of Donald Trump-related grief. After shock, denial, and anger, we now get bargaining. We have heard several suggestions, variously, that the EU could buy more American liquefied natural gas, or weapons, or both. The latest came from Valdis Dombrovskis, the economy commissioner.

LNG is likely outside of virtually any European government’s gift. But defence certainly isn’t. Governments, of course, are the main buyers of defence equipment, and they ultimately make decisions over what to get, and how much to spend. The EU already buys a lot of American equipment. In the year from the middle of 2022, during the defence spend ramp-up after Russia’s invasion of Ukraine, almost two thirds of all EU defence orders went to American firms.

Defence spending is also more in line with the US trade surplus in value terms. In 2023, EU countries collectively spent about €279bn on their defence budgets. That same year, the EU-US trade surplus came to just under €157bn. By comparison, the EU plus the UK typically import somewhere from €75-100bn a year worth of gas currently.

But buying American guns in exchange for them continuing to buy proverbial European butter has some obvious downsides. First, there is the economic and political impact of defence spending. Ramping up the defence budget in the order of the hundreds of billions of euros would put strains on national budgets at a time when very few big EU countries have fiscal capacity.

Either you do that, or you deprive European firms of additional orders, compromising one of the few areas of European industry that seems to be doing relatively well these days. Delivering a material increase in spending on someone else’s equipment is allowing them to reap benefits your own industry otherwise would. These are, of course, factories, taxes and jobs you would otherwise have.

Then of course there are security concerns. Using any advanced defence equipment, whether it’s missile batteries or aircraft, requires constant maintenance and support. If things sour with the US, any future administration can of course use that as leverage. Even if US military equipment doesn’t have so-called kill switches, the passage of time could render it inoperable.

The harsh reality is that there are no easy fixes for the problem at the heart of the conflict with Trump: our reliance on surpluses. This would require a series of sweeping changes to our own economic policies, but would at least make us less reliant on the US. Instead of even more.

The Irish Dáil has nothing of the grandeur of the French National Assembly, but the tumultuous scenes yesterday in the Dáil on its first day back in action reminded us of the loud commotion we know from France.

Irish opposition deputies were shouting and refused to allow the vote to proceed to elect the new prime minister, Micheal Martín. This was an open revolt against the deal Martín concluded with Micheal Lowry, the head of a group of independent MPs to support his minority government. The whole day long there were waves of disruptions and angry groups of opposition MPs meeting during the pauses. Government MPs looked on in disbelief. Six hours later, Fine Gael and Fianna Fáil leaders Simon Harris and Micheál Martin blamed Sinn Féin for all this chaos. To add insult to injury, the protocol meant that they had to move outside the gates of the parliament building to speak to the press.

What is the matter of discontent? Fine Gail and Fianna Fáil secured an agreement with independent MPs to secure a majority for their government. Lowry negotiated that seven of his independent MPs will get some ministerial jobs and the other three would get opposition party speaking time in the Daíl. Government parties did not see this as a problem, until they were hit with the outrage yesterday.

To avoid a second day of turmoil in the Dáil, opposition parties and parliamentary speaker Verona Murphy worked until late last night to find a solution. The deal, which the government parties have yet to agree to, would exclude those independent MPs who support the government from participating in the opposition technical groups. Party leaders are to meet this morning before the Dáil session is to resume its agenda to elect the prime minister.

The conflict could though flare up further. Martín yesterday accused opposition parties of subverting the constitution. They would have to accept the new proposal and find another way of compensating independent MPs. No matter when and how this standoff will end, it is not a good start for a government that has Donald Trump breathing down its neck. In this sense we see another parallel with France: in both countries domestic issues that seem small compared with the larger policy challenges of the time are turning into stumbling blocks for governments.

The Europeans were the first in the world to have an AI regulation. But the Americans are the ones with the actual AI. Yesterday, OpenAI announced a $500 billion investment programme for new AI infrastructure, of which $100bn are to be deployed immediately. The Europeans are totally asleep at the wheel. OpenAI is right to say that AI will support the re-industrialisation. This is because industry 3.0 will require AI to optimise production processes. The way this works is that many sensors will be attached to each node of a production line, and data generated will be transmitted to a data centre, which analyses the data and feeds the information back to the company, to be used for quality control and manufacturing logistics.

We reported at one point about the German association of the electrical engineering industries, ZVEI, that they placed many of their hopes in European data centres. But our heart sank when we heard them saying that the number one priority of German companies was data security. That is the cloak under which investments are delayed. Data security should be a constraint, not a priority. Gottlieb Daimler, the inventor of the motor car, did not obsess with road safety. That came later. The Europeans have turned this upside down. The priority should be to get this going.

The sums involved are too large for governments. What government need to do is take into account the effects of AI on the future energy policy, and on regulation. The EU is a hostile territory for the AI industry on both accounts. The tragedy is that European engineers are some of the pioneers of AI technologies.

The leverage for such sums can only be provided by a large and integrated capital market, or by consortia of companies and banks. It would be wrong to think of AI as just another industry. It is not even clear that the AI industry will be as profitable as current market valuations, because AI is not a franchise at the software level. It becomes a franchise through large infrastructure. The reason why it should matter for the EU is that AI is on course to become one of the principal determinants of industrial competitiveness.

It is not a secret that Giorgia Meloni is, of the big EU leaders, uniquely close to Donald Trump. This was confirmed by her attendance at Trump’s inauguration, where she was the only European leader. After being sidelined in the EU’s own post-election negotiations last year, this now gives her a great deal of power and influence. The question is what she does with it, and how it impacts the EU. She could either act as a go-between, enabling some relationship to continue despite Trump’s hostility to the EU. Or she could help him undermine it from within, siding with him in their disputes and complicating any EU response.

On the one hand, Meloni owes the EU nothing. Leaders from the main centrist parties effectively blocked her from negotiations over the union’s top positions. Her party, Fratelli d’Italia, ultimately voted against re-confirming Ursula von der Leyen as European Commission president. Not bringing Meloni into the system was, we think, a long-term mistake. Those that you leave outside of it often commit themselves to bringing the system down.

But, for the time being, it doesn’t seem like Meloni is interested in that. The benefits Meloni can extract by undermining the EU from within on the US’s behalf are not on a par with gaining influence within the EU itself. Italy is not exactly going to become part of the US anytime soon, but its EU membership is a concrete reality now.

Being too much of a loose cannon could also hurt Meloni’s domestic political credibility. She has differentiated herself by cultivating a reputation for being serious and reliable. Her own rationale for the closeness to Trump is more that the US is an important ally for Italy, and less so that she particularly likes Trump. Cosying up to Trump and his administration is shrewd diplomacy. Being an agent of chaos on his behalf would risk backfiring, and providing an opening for Italy’s opposition.

Assuming this will always be the case takes that stability for granted, however. The more interesting question is what would happen if there was some sort of crisis that intruded, either in Italy itself or in the wider EU. That would be more of a test for Meloni, and we do not know exactly how she would react.

We expect, however, that she would take a means-to-an-end approach to her own relationship with the EU’s in those circumstances. Meloni has struck us neither as a zealous eurosceptic nor a genuinely converted EU-enthusiast. Instead, we think she views its existence as a fact of life, and something that can be useful for furthering her own reputation and political goals. If it becomes an obstacle instead, that may be where the problems arise.

Greece is geographically the first point of entrance into mainland Europe coming from the Middle East. Athens now seeks to explore its opportunities in a new strategic alliance with Saudi Arabia.

Athens and Riyadh have been expanding over the past four years their ties on military, political and economic matters with a shared commitment to regional stability and economic diversification, writes Al-Monitor. Both countries have now set up a High-Level Strategic Cooperation Council. This council will have seven committees - on political, military, investment, energy, tourism, culture and sports - each headed by a relevant minister from both countries.

For Greece, this is the first major push to advance relations with a Middle Eastern country. Riyadh could also play a central role in the India, Middle East, Europe economic corridor, an initiative announced at the last G20 meeting in New Delhi, offering new economic and energy cooperation opportunities with Europe, and as a connector to the Asian continent. There is a lot of potential there, and some projects already kicked off: Hellenic Petroleum signed a deal to refine crude oil from Saudi Arabia. Greek Independent Power Transmission Operator and Saudi National Grid have established a joint company and are planning an interconnected electricity project between the two countries. Several Greek companies, meanwhile, are engaged in helping Saudi Arabia to deliver its 2030 vision.

This bilateral relation is also likely to have an impact on other EU countries. Kyriakos Mitsotakis hopes that the strategic positioning of Greece turns the country into a hub for southeastern Europe and a gateway to both the Middle East and Asia, positioning it as a key partner for exporting Saudi hydrogen to the EU. There is also a movement on security. Greece is providing a Patriot air defence system to protect the kingdom from missile and drone threats. This has set the tone for building further relations with European countries, according to one of the experts. Greece may use this new alliance to address EU-Middle East security needs, and thus carve itself out a new role within the EU.

The Netherlands is the world’s second-largest agricultural exporter, and with that comes pressure from nitrogen emissions on the local ecosystem. Recent, belated, government attempts to deal with the issue backfired, prompting widespread farmers protests that eventually spread across Europe. These protests also indirectly contributed to the demise of Mark Rutte’s last government.

Now, nitrogen is back to haunt the new-ish crew in the Hague. A recent ruling by the Dutch Council of State has potentially made some construction projects retroactively illegal. This is because the body quashed a nitrogen emissions off-set practice known as internal netting. Using this practice, those holding nitrogen permits could undertake new developments without applying for another permit if they had spare room left on their existing permit allowance.

Now the Council, which functions as an administrative court of appeal, has said these businesses would have to apply for new permits. The last time the Council ruled in such a major way on government nitrogen policy, in 2019, it prompted a crisis that caused 18,000 construction projects in the country to grind to a halt. As a result, the government has become concerned, and might set up a committee to figure out what the implications will be and some way forward.

The scale of the nitrogen issue is particular to the Netherlands because of its small size and relatively big farming industry. But this offers an instructive lesson in how not to do policy. Over in France, pensions are the thing that’s now causing major consternation. But in the Netherlands, previous governments passed a comprehensive change to the Dutch pension regime over time with relatively little fuss. It was an even bigger shift than in France, because it entailed transitioning from a defined benefit to defined contribution system.

To understand why this has happened, it’s worth considering the different approaches. In the Netherlands, the pension reforms came out of a long series of negotiations with social partners – like employers and trade unions. Then a long transition phase has come afterwards, and the new system will only fully be in place from 2027 onwards.

In contrast, the last government’s nitrogen law followed a long period of inaction despite something clearly needing to be done on the issue. Then court rulings, including the Council’s 2019 ruling, effectively bounced them into making a hasty decision which left Dutch farmers feeling unheard and threatened. In this respect, it has more in common with the heavy-handed way Emmanuel Macron handled the French pension reforms than it does with the Netherlands’ own approach to pensions.

Hamas and Israel reached a deal. Not a ceasefire just yet but a so-called period of sustainable calm, a term which should mean the same on the ground but has fewer legal strings attached. The structure and the content of the deal is not much different from what Joe Biden put on the table in May 2024. What is different today is that Donald Trump made it happen. The deal will start to be enforced on Sunday, one day ahead of Trump’s inauguration.

The two sides agreed on a three-phase plan that starts with a first release of hostages for prisoners, swapping women, children, and the elderly. Israeli troops are to retreat to a 700m buffer zone along the entire border inside Gaza. Palestinians can return to their neighbourhoods and humanitarian aid will start to flow back into Gaza. The next phase would include the release of male hostages and Israeli soldiers in return for more Palestinian detainees. The third would be a complete retreat of Israeli forces from Gaza and the beginning of the reconstruction of Gaza.

Every phase is to last 42 days and only goes into the next phase if negotiations succeed. So the main efforts for a proper ceasefire are still ahead. It is possible that they never get to phase 2. Israel could always find ways to accuse Hamas of not respecting the deal. They could decide to militarily intervene if they suspect terrorist activities. It is also not clear yet how free the Rafah border crossing between Egypt and Gaza will be from Israeli interference. All these technical details are highly sensitive and political.

Why did Trump succeed where Biden failed? One reason is their different personality: Trump is transactional, while Biden is ideological. Trump’s support for other nations is always conditional, while it was unconditional for Biden. Trump has no problems to use all his power as US president to push through his way, whereas Biden counted on diplomacy alone. Trump’s envoy, Steve Witkoff, is not your usual US diplomat either. Witkoff is a real estate investor who knows how to conclude deals. He directly reports to Trump.

The deal will change the parameters of Israeli engagement in Gaza. They can only walk away from the deal with Trump’s blessing.

It is remarkable that Trump, with his belligerent rhetoric, could turn out to become the peacemaker in the Middle East. There is still is a long road ahead towards real peace. To get the deal done ahead of his inauguration has been an astonishing success for Trump. Once he is in office,  his US administration needs to build on this. The Abraham accords and the normalisation with Arab countries will be back on the table and with it the demands for a two-state solution. The ceasefire deal was just the beginning. A walk in the park compared to what comes next.

Hopes are high that hostage and ceasefire deal between Hamas and Israel will succeed this time. While the Trump factor may have played a role in pushing the deal as far as it is now, there is no guarantee that it will get over the finish line ahead of the inauguration of Donald Trump. It still could blow up in the last minute over big or small disagreements.

According to Dropsite News, the three-pages draft agreement sets out a three-stage path for hostage exchange, ceasefire, and Israel’s withdrawal from Gaza. It does not demand the dismantling of Hamas or its exclusion from Palestinian politics. Nor does it permit the open-ended presence of Israeli occupation forces in Gaza. These are real concessions from the Israeli side. One of the technical points yesterday still under discussion was the question of where Israeli forces would be positioned in the new buffer zone inside Gaza.

Benjamin Netanyahu needs the Security Council, not the parliament, to approve the deal. And it seems he has enough support to ratify it. Hardliners inside the government may be outspokenly against the deal, but their influence is less than it used to be since Netanyahu included other parties in his government.

A total victory against Hamas and its infrastructure, as Netanyahu promised previously, was never a credible target. Instead it was an excuse to forever prolong this war. There are not many targets left in Gaza to hit and Israel continues to lose soldiers every week. It is also a matter of consistency. If Israel can agree to a ceasefire with Hezbollah, without reaching its goal of complete destruction of the militia, why can’t they do the same with Hamas in Gaza and free the hostages?

We do not know what Trump promised Netanyahu if he plays along and agrees on a ceasefire.

Netanyahu still can credit himself as the one to have re-engineered the Middle East by severely decimating Hamas and Hezbollah and weakening their sponsor, Iran. Netanyahu even claims to have triggered the fall of the Assad regime.

There is undoubtedly a new balance of power emerging in the region. A normalisation with Saudi Arabia, as mediated by Trump in his first presidential term, could go ahead once the cease-fire in Gaza and a dignified prospect for the Palestinians is for real. The main focus right now is to get Hamas and Israel to agree on a ceasefire deal. This may happen only in the final hours before the inauguration. 

France and the UK are experiencing what looks like different economic and political issues. But on deeper inspection they have similar causes. In France, the major totem for both the left and far-right is scrapping Emmanuel Macron’s pension reforms. Over the English Channel, one of the many economic issues Labour now has to deal with is the stress in the UK’s mortgage market, a result of dysfunctional housing policy.

Each is, in its own way, a harbinger of the same phenomenon, which virtually no government in Europe will be able to avoid: the impact of ageing populations. Below replacement-level fertility rates, common across Europe, put strain on welfare systems. In the case of pension systems, like in France, this has to be resolved one way or another: by making pensions stingier, or forcing younger workers to contribute more.

Macron has tried the former option, though without touching current pensions. But if these reforms are reversed, the French government may run out of time to go this. According to Insee, most of France’s population growth will be in the 65-plus age groups. As there are more older voters, they will grow in political power. The result will be more pushback against changes to the pension system that reduce its scope or make it less generous, whether from retirees or those on the verge of retiring.

Future attempts to make the pension system more sustainable may look more like Spain’s recent social security reforms, which have increased contributions. The Spanish government’s 2023 reforms have also tried to convince people to delay retirement. But it is doing so through incentives, rather than by pushing back the mandatory retirement age.

In the UK, the housing market is a generational issue too. One of the main causes of the pressures building up in the mortgage market is a series of measures. These, combined, have stymied home-building, propped up house values, and pushed up house price-to-earnings ratios. They have overwhelmingly benefitted older Britons, who are most likely to own their own homes, and own them outright without the need to continue a mortgage too.

Similarly, this is an unsustainable situation that will have to be resolved too, both in terms of the indirect impact it has on government borrowing, and any fallout from a possible financial crisis. This is not to mention any kind of expectation from frustrated homeowners that they are compensated for their houses falling in value, if a crash does happen. In a country with an ageing voter base, we expect the question of who will pick up the tab will again hinge on the balance between younger and older people.

The risk in each instance is of a slow acting political-economic doom-loop. The smaller and smaller portion of economically active workers becomes squeezed more, as they are outvoted by a growing proportion of inactive, or soon-to-be-inactive, ones. It is another possible secular drag on economic growth in the coming decades, one which there is no easy answer to.

Eastern European countries are increasingly polarised over the EU’s support for Ukraine. Last year Moldova’s pro-EU president Maia Sandu won a second term only after a tense election run-off, framed as a choice between Europe and Russia. Romania's constitutional court annulled the result of its presidential elections, after the first round was won by Calin Georgescu, an almost unknown far-right Nato-sceptic who praised Vladimir Putin.

Yesterday Croatia’s president Zoran Milanovic, a staunch critic of Western support for Ukraine, won a second term. This was a landslide victory with 74.5% of the votes. Milanovic is currently the most popular politician in Croatia, known for his robust rebuttals of opponents. His favourite target is prime minister Andrej Plenkovic, a Ukraine supporter and darling in Brussels, who Milanovic accuses of being corrupt. Milanovic also accuses the EU of being undemocratic, run by unelected officials with an either-you-are-my-friend-or-my-ennemy mentality over Ukraine. He had advocated that Croatia should stay out of the war between Russia and Ukraine. These may be just words. After all, Milanovic’s role as president is largely ceremonial. But he is popular, and oversees the armed forces and appoints diplomats. He already prevented Croatia’s participation in two Nato missions to help train Ukrainian troops outside Ukraine, much to the annoyance of Plenkovic.

Milanovic condemned military aid to Ukraine as a deeply immoral path to prolonging the war with Russia last year. We also heard a similar tone from prime minister Robert Fico in Slovakia, the FPÖ in Austria, and from the AfD and BSW in Germany. These are no longer single incidents. There is a theme here that is likely to persist.