Europe's rude awakening

If there’s a lesson for Europe to take from the past couple of weeks, it’s that it needs to wake up. JD Vance’s speech at the Munich Security Summit and the beatdown of Zelensky in the Oval Office made it clear that Europe needs to take greater responsibility for its own sovereignty.

Over the past few decades, Europe took the decision to hollow out its own defense and energy capabilities: security was outsourced to the US and energy to Russia. Instead, Europe directed its finances to support its ever-growing welfare states. These decisions may have been well intentioned in the moment, but with the benefit of hindsight, they look poor.

Whatever one may think of Trump’s tactics, he has undoubtedly woken up Europe to the dangers of its own predicament, and injected it (by design or by accident) with the urgency to respond.

Just over the past couple of days we’ve seen the European Commission propose a 150B EUR fund for EU countries to spend on defense and the incoming Chancellor of Germany proposing to change the country’s debt brake in order to facilitate more investment into infrastructure and defense. I’m sure we’ll see more initiatives like these across other European countries in the weeks and months to follow.

I welcome the vibe shift. Europe has for far too long not taken the responsibility of ensuring its own sovereignty seriously enough. There’s a lot of work to be done by the public and private sectors over the coming years to remedy that.

The technology sector will play a big role in all of this.

Looking at defense, companies like Anduril and Palantir in the US have shown that modern defense companies are first and foremost software companies. Europe’s answer to Anduril, Helsing, has shown that Europe can produce large defense focused technology companies of its own, but there need to be more.

On the energy front, Europe needs to develop home-grown alternatives to cheap Russian gas. Investment into nuclear seems like a first stop, but there’s many others to explore as well.

Europe has the talent. The region is home to technical universities that consistently rank among the best in the world and produce world-class talent in both software and hardware. However, capital markets, both at the early and later stages, need to evolve to meet the opportunity.

Most venture capital funds in Europe are still not allowed to invest into defense companies. That’s because the Limited Partners of venture funds, such as EU investment programs, university endowments, pension funds etc., don’t allow them to. Some funds have gotten around that limitation by investing in dual-use companies whose products have both military and civilian applications. At later stages, public market investors often face ESG requirements that prevent them from investing in publicly listed defense companies. For Europe to be able to build its own defense capabilities, investors across different stages need to be able to provide investment unencumbered.

On the energy side there’s a lack of capital at the earliest stages as many investors are not comfortable investing into hardware. However, any viable solution for Europe’s energy independence will inevitably involve a significant hardware component. We’re starting to see a crop of specialized early stage funds emerge that are comfortable making these types of investments but we’ll need to see even more.

While it was incredibly uncomfortable to watch, I think we’ll look back at that Zelensky exchange in the White House as the moment Europe woke up. The agenda is clear, now Europe needs to go execute.