War and peace divide the US and Europe

If markets thought the frayed relationship between the US and Europe could be easily repaired, Vice President JD Vance’s speech to the Munich Security conference disabused them of that notion.

He tore into Europe’s attitude to free speech, highlighting individual cases where European governments and law codes had in his view eclipsed liberty. He spoke up for the populist and radical parties of both right and left and accused Europe of seeking to marginalise or ban them.

To ram home the point he organised a meeting with the Leader of Germany’s AFD party. The mainstream parties have made clear they will not cooperate with her should she come second with a fifth of the vote as polls for the February German election suggest. It is not normal for a senior visiting politician to meet with any Opposition leader during an election, but the Vice President was on a mission to say that elected officials need to respond to big movements in the popular will as may occur with the AFD vote in Germany. He did also meet the man most likely to become the next German Chancellor.

President Trump praised the speech. His disagreements with Europe centre around trade and the continuation of the Ukraine war. He believes the array of tariffs imposed by the European Union (EU) are a barrier.

He dislikes EU and UK legislation to censor comments on social media, and the big fines that can be imposed on businesses which are usually US owned. He is against the digital taxes that mainly affect US companies. He remembers the many critical comments made about him during his four years in opposition, and the ways some people and governments sought to help the Democrats in the election. There are also substantial differences of view over how to respond to the wars in Gaza and in Ukraine.

Trump wants to be a peacemaker

President Trump before election grandly promised an instant solution to the Ukraine war which he thought he could bring about by contacting Russian President Vladimir Putin. In office he still thinks he can pull off a peace but says it will take longer. He did influence the very difficult and much extended ceasefire negotiations President Biden was undertaking in Gaza, whilst he was still President elect before taking office. He made it clear he wanted a peace in the Middle East and would take tougher unspecified action to bring it about if needed. Suddenly they agreed.

His outlines of a more lasting peace in both places have caused strong disagreements.

In Ukraine, he seems to want Ukraine to accept loss of territory to Russia as they do not have the force to win back lost lands. To get President Putin to agree to give up his aggressive attacks on Ukrainian territory he suggests that Ukraine would not be allowed to join NATO. To try to reassure a worried Ukraine, some suggest a European force to protect a new border so Russia could not easily resume the fighting when they have rebuilt and rearmed.

In Gaza, he has suggested that the Palestinians be found new homes and a peaceful future in adjacent Arab states. Gaza could then be rebuilt from the rubble to be sold to an unspecified new population.

The Palestinians do not want to lose this part of their homeland, whilst the neighbouring states do not want to settle the Palestinians on their territory. So why did President Trump make such proposals that were bound to be opposed by many local interested parties?

He probably wished to challenge the diplomatic world who have been telling us for decades that there can be a two-state solution to the Palestinian problem, when different attempts to deliver that have always been thwarted. He will have been influenced by the Israel view of Hamas as terrorists who want final victory, removing Israel from the region. Israel struggles to see how to live at peace alongside Hamas. Israel has also found out they cannot eliminate Hamas from Gaza even in a long and brutal war. The Palestinians have many supporters of their view that they need their own state.

The EU has lined up against Trump proposals

The EU still proposes the two-state solution in the Middle East, and think it is possible for the Palestinians to rebuild Gaza for themselves with international help and then to live peacefully next to Israel without more terrorist or military incidents. The EU is peripheral to any settlement. Negotiations are led by Egypt and Qatar, with the US a direct influence, and Iran/Russia an indirect one. The EU will not stand in the way of a settlement if the main players are able to deliver one.

The EU regards Ukraine as central to its foreign policy. It has offered membership to Ukraine, which is working its way through the various chapters to a membership Agreement to become compliant with EU requirements. The EU sees aggressive advances by Russia as unacceptable. There are potential flare points over Moldova and Georgia as well as Ukraine.

The EU at the same time has had to proceed carefully, as prior to the war it had become very dependent on Russian oil and gas. In the early months of the war the joint US/EU sanctions were abated in Europe to allow time to adjust their pattern of energy buying. EU states shared President Biden’s caution over supplying the most modern and effective weapons to Ukraine. They imposed restrictions on their use to confine them to battlefields in Ukraine itself. They failed to deliver munitions and weapons on time and often fell short of promised quantities.

What happens next?

It seems that Qatar and Egypt will continue along the slow path to peace of the negotiations so far. It is taking a long time to free all the remaining hostages and, in turn, the many more Palestinian prisoners in Israeli jails. There then must be discussion of how Gaza will be governed and rebuilt, with Israel wanting some security guarantees and the Palestinians wanting an end to Israeli military action. Secretary of State Rubio is turning the criticisms of the Trump plan around by asking the main participants in the talks what their answer is given they do like the President’s. Long and difficult negotiations are likely.

The Iranian/Hamas/Hezbollah side must avoid further provocations of Israel to reach a more lasting agreement. They will have noted that President Trump has tilted more in favour of Israel than President Biden. It is not easy for President Trump’s style of personal diplomacy to work as he does not deal directly with Hamas but through friendly intermediaries like the King of Jordan. It is Hamas that needs to want peace for it to work. President Trump will seek to put more pressure on Iran.

In Ukraine, President Trump is placing his optimism in his ability to get a decent deal from President Putin. They are working towards a meeting when both men will want reassuring that they can agree something they can defend before proceeding. Ukraine and the allies fear that President Trump will give too much. He thinks that Russia does need to be brought in to the world community more and sees no prospect of Ukraine being able to recapture some of its lost lands. He wishes to remove the cost and burden of Ukraine from the USA.

He is using it successfully to force the European allies to accept more responsibility and to promise to greatly increase their own military contribution to the alliance. He does not intend to let Ukraine join NATO any time soon, as that would commit the US and NATO to war with Russia if more trouble occurred which, so far, they have been wanting to avoid. There is a chance that the US will get sufficient from Russia to be able to deliver a peace. The US can pressurise Ukraine by withholding weapons and financial support.

The EU With a new German Chancellor

It is widely expected that Germany will vote for the CDU Leader Mr Merz to be the new Chancellor this month. He will need to assemble a coalition. He wishes to increase German influence in the EU. He says he backs Ukraine, but he also wishes to be friends with the USA. He may well be willing to increase Germany’s defence budget and contribution to the security of Europe. Stepping up the purchase of weapons and munitions could provide some stimulus to a no growth German economy. It is difficult to see the EU being able to replace the loss of US assistance if it came to a showdown over any given peace proposal, leaving Ukraine with insufficient support to carry on the war.

The end game

From a more pro-Israeli stance President Trump and Secretary Rubio may be able to edge the tortuous peace process forward in Gaza without being able to turn Gaza into a great resort development opportunity for US property concerns. The peace process will be more driven by local influences.

In Ukraine all rests on the Trump/Putin talks. If President Trump thinks he has a deal he has leverage to try to sell it to Ukraine.

It is highly likely these events have now pushed the leading governments of Europe into needing to increase their defence budgets and to build more factories to make weapons and munitions. Given the weak state of the economies and finances of many European countries this is likely to be financed by extra borrowing.

There is a debate underway as to whether the EU itself will raise, say €500bn to boost defence, or whether it will just be done by allowing EU member states to borrow more on their own accounts to rebuild their arsenals.

Russia will want a thawing of relations as part of the price for a deal on Ukraine. In due course, there will be moves to allow some legal trade in oil and gas with the West.