Blain’s Morning Porridge 13^th Feb 2025 – The Economic Consequences of a Cold War Peace in Ukraine.

“The secret of good politics? Make a good treaty with Russia.”

Trump and Putin will agree Peace in Ukraine. The USA will walk away, leaving Europe to deal with the consequences of an unbeaten Russia. A new cold war will descend. That could provide the spark for a European rebirth around rearmament and a new unity of purpose, or instability as Russia seeks to pick off weak nations.

In the wake of Trump’s Peace a new long cold war with Russia will likely dominate the European Economy – perhaps for decades. That’s not necessarily a bad thing in terms of economic growth – as long as it doesn’t turn hot! The West won the last cold war by outcompeting the Soviet Union, before it turned soft. War is economics – and a new cold war could provide the economic incentive that Europe needs to stimulate growth, create effective unity, and become aware of its own tremendous potential.

As many expected, Trump’s plan for Ukraine is America First. Naturally.. the stock market loves it. While Europe has sought to isolate Putin, Trump engaged. The “productive phone call” between the two will have enraged Europe’s politicians – but what can they do unless they are prepared to fund Ukraine’s fight for freedom?

Last night on the BBC news there was a brief interview with a “generic-average-American” on the streets of “generic-average-American-city” where she welcomed the prospective peace in Ukraine as good news for the USA: “it’s sad people are dying, but it’s got nothing to do with us….” was the gist of her comments. It sounded heartless, but she’s right..

Europe is Europe’s problem, and Ukraine is part of Europe – whatever Trump believes.

While there will be a lot of wailing about Trump’s America betraying Ukraine, and his unreliability towards Europe… perhaps it’s the wake up and smell the coffee moment Europe needs. Its nearly 80 years since the end of the Second World War (which the Americans still believe they won, despite turning up a couple of years late after everyone else was exhausted…)

US Defence Secretary Paul Hegseth comments about no NATO membership made clear Ukraine is not worth the life of a single American serviceman. Many defence analysts are convinced it’s only a matter of time before Trump withdraws the US completely from its’ Nato obligations – citing Europe’s responsibility to defend itself, while highlighting the continent is not critical to the America First agenda.

It Trump gets his way, Greenland will become Americas new Eastern limit – whether the Danes like it or not. The UK may yet become Airstrip 1 (extra points if you know the reference), but don’t bet on it – depends on what kind of deference Starmer et al are prepared to show to new King in Washington.

Hegseth has made clear Ukrainian Peace will be Europe’s problem. European nations will baulk at the costs of (and lack of) boots on the ground. We will thus likely face the indignity of a UN force, probably of Indian and other South-East Asian peacekeepers, patrolling the ceasefire line to keep the peace in Yoorp.

Russia will claim victory, retain the territory it stands upon, and argue globally for the return of the provinces it will continue to claim – remaining in threat mode. In the face of that uncertainty Ukraine will struggle to find the investment from Europe it needs to rebuild its wrecked economy. You can bet Trump will seek to wrest preferential access to Ukraine’s mineral wealth as the cost of peace from Zelensky. Perhaps American corporations will seek to profit from the opportunities for Ukrainian reconstruction – I’ve never met a hedge fund manager who doesn’t like a distressed seller!

What is clear is the era of Captain America as global peacekeeper, and champion of freedom and justice is so, so over… From the American perspective, peace in Ukraine will be transactional. If it keeps Europe from threatening US commercial interests, or can be used to “persuade” Brussels to fall into line with the US Tech agenda, (ie digital services), then so much the better.

There won’t even be the all-too familiar trope of Trump standing on the steps of Airforce One waving a letter and claiming “peace in our time”. No one will pretend anything else but that Europe is on its own.

Historically, when a global or regional hegemon pulls back and leaves a power vacuum, the result is further conflict as the regional powers seek to dominate. One example is how the recall of Roman Legions from the Western Empire’s borders resulted in successive waves of Huns, Goths, Visigoths, Vandals, and eventually the Tartars migrating from the East, pillaging the decaying Roman half of the Empire. Byzantium endured another thousand years….

Maybe Europe will go the same way? However, a better parallel might be Italy and Germany in the 15-16^th Centuries where weak and disunited small states were riven by invasion, conflict, mercenary bands and religious wars because they lacked unity.

The prospects for long-term stability in Europe are questionable:

• The lessons on Europe’s economic vulnerability re energy security have been noted, but it’s not clear if Europe’s right-leaning Populists will have learnt them – some will no doubt be willing to re-embrace cheap Russian Energy to deliver the growth they need to keep their voters happy. We may learn history in School, but we seemed doomed to make the same mistakes repeatedly about recognising the enemy.
• In the face of extreme budget pressures, and government fiscal priorities, Europe believes it lacks the fiscal resources to re-arm at the pace that may be required.
• Europe’s war-fighters will be concerned about the critical weapons systems they’ve bought from the Americans – will Trump switch off our insanely expensive F-35 fighter-bombers if we threaten to use them?
• While Russia is spending huge sums on rebuilding its shattered forces, and will have learnt much from its reverses in Ukraine, the hollowing out of European defence capabilities means most countries are unprepared for sustained combat. The British Army is half the size it was 30 years ago, and can barely field a single combat ready division with limited logistical reserves to fight more than a few weeks.
• Europe’s defence industries produce effective kit, but lack a) the scale of the established US military-industrial complex, and b) are dominated by procurement bureaucracies that would slow new disruptive tech defence contractors that could swiftly provide a technological margin over Russian capabilities.

Most importantly, nothing stops a bully short of an all-out beating. Trump will not address Putin’s messianic zeal to restore the borders of the first Imperial Russia. That will be enough to keep Europe in a new cold war posture. Putin will seek to divide and rule, picking off vulnerable nations like Italy, and Hungary with deals. China, Iran and North Korea will be delighted – a cold war will be nearly as profitable in terms of weapons demand as Russia reequips as a hot one.

Or Europe could wake up to its responsibilities, rearm, face down the bear, and learn to stand on our own feet. What do you reckon the chances of that? It will require a mindset change.

The Russian economy is about $2 trillion with a population of around 144 million. The European Union plus the UK is worth around $21 trillion, with over 520 million generally healthier, better educated citizens. If we could marshal that capacity… Europe could shock the world.

Out of time and off to do the day job…

Bill Blain

Author Morning Porridge

billblain@morningporridge.com

www.windshift.capital