Europe on its own feet

The world is deglobalising and becoming more geopolitically fragmented. The US is pursuing its own version of self‑reliance through an America First policy, threatening to leave NATO and using tariffs as a weapon to rebuild domestic industry. Across the Pacific, China is seeking dominance in selected sectors, from electric vehicles to solar panels and artificial intelligence, aiming to make the world dependent on Chinese supply chains while reducing its own dependence on others.

This trend did not begin this year, nor did it start with President Donald Trump. It has been building for more than two decades, as China’s rise reshaped global trade after its entry into the World Trade Organization, while the US and Europe saw their relative dominance decline following the Iraq war and the global financial crisis. World trade peaked in 2008. Since then, the assumption that globalisation would deepen indefinitely has steadily weakened.

While every major power is trying to become more independent, chokepoints in global supply chains make full independence impossible. The latest escalation involving Iran, and the disruptions in the Strait of Hormuz, show that even as countries reduce certain dependencies, exposure to a small number of critical routes remains unavoidable.

Power on the world stage, in the end, is defined by two things: economic power and military power. The US and China have both. Russia remains primarily a military power, and while Europe is an economic heavyweight, it lacks the same degree of military autonomy, and it does not control key energy flows or critical digital infrastructure.

Therefore, if Europe wants to avoid being caught between Washington and Beijing, the continent must reduce its dependencies in the areas where it is most exposed: defence, energy and technology.

The Russia-Ukraine war, the MAGA-driven tariff policies under President Trump, and the Iran conflict have once again shown Europe’s vulnerabilities and dependencies. First of all, on energy. Europe has reduced its reliance on Russian gas, but this has largely been replaced by a strong dependence on American LNG. Although Europe had become more flexible by adding more renewables to its grid, the Iran conflict shows that Europe remains vulnerable to supply disruptions as energy is a worldwide market.

At the same time, Russia’s invasion exposed how poorly prepared Europe was for conflict on its own continent. For decades, European governments assumed that large‑scale conflict on the continent was a thing of the past and that security could be outsourced across the Atlantic. Defence budgets shrank – and so did ammunition stockpiles.

A third dependency is less visible, but not less important. Modern defence systems, financial markets and public administration cannot function without cloud computing. As economies digitalise and data volumes grow, reliance on cloud infrastructure only increases. Yet cloud computing, data storage and artificial intelligence are dominated by a small group of US companies. Hyperscalers such as Amazon, Microsoft and Google together control around 70% of Europe’s cloud market¹.

Taken together, Europe remains dependent in areas that are becoming more critical to economic stability and security.

Europe’s defence dependency has triggered an immediate policy response. Military expenditure has risen sharply since Russia’s invasion of Ukraine and last year NATO allies made a commitment to invest 5% of GDP on defence.

These higher defence budgets will channel investment across the defence sector. One immediate priority is replenishment. Ammunition, missiles and air‑defence systems, where European inventories have been run down since 2022, require continuous restocking. Companies active in defence manufacturing and the production of munitions and air‑defence capabilities can benefit from this sustained need to rebuild inventories. Furthermore, military aircraft, helicopters and advanced electronics are central to Europe’s rearmament effort.

Defence spending is also shifting toward capabilities that reflect how warfare is evolving. Increased use of drones has accelerated demand for both unmanned systems and counter‑drone technologies. At the same time, modern military operations depend heavily on secure communications, sensors, electronics and cyber capabilities. Companies which are active across command‑and‑control, communications and electronic warfare, are well positioned to benefit from increased investment in these areas.

In energy, renewable energy and storage play a central role, as domestically produced power reduces exposure to external shocks. Under current policy targets, the EU aims for renewables to account for 45% of total energy consumption by 2030, up from 25% today². Nuclear energy also remains part of the energy security discussion, particularly as a source of stable baseload³ power.

Investment needs, however, extend well beyond energy generation and storage. Europe’s energy infrastructure has not kept pace with rising system demand. Electricity grids are a central bottleneck. As a result, companies active in grid technology, power management, system automation, transmission networks and interconnectors can benefit from sustained investment in modernising and expanding Europe’s electricity infrastructure.

In technology, the investment story mirrors that of the energy sector. Replicating the US hyperscalers will be difficult. Europe does have technology firms of its own, such as SAP in enterprise software and cloud services, and Mistral, a private company, in artificial intelligence. But they do not operate at hyperscale. They lack the capital, global reach, data access and network of the US platforms. Europe’s response is therefore not to build its own version of the global tech giants, but to reduce the risks of relying on them.

Regardless of who owns the platforms, cloud computing and AI depend on physical infrastructure that must be built and operated in Europe. As adoption grows, demand for data centres, power infrastructure, grid connections, cooling systems, automation and networking hardware is rising. If Europe builds more cloud capacity, this infrastructure has to expand. If US hyperscalers continue to grow in Europe, the same infrastructure has to expand as well. This creates investment opportunities in European companies involved in data centres, power supply, cooling systems, grid connections and digital infrastructure.

Europe cannot fully insulate itself from global supply chains. Chokepoints mean some dependence will always remain. But as defence, energy and technology become more critical to economic stability, Europe is increasingly choosing to reduce its dependencies in these areas. That shift is driving investment into the physical infrastructure and industrial capacity that allow Europe to stand on its own feet.

Investors who want to learn more about how to position their portfolios for Europe’s move toward greater independence can reach out to their adviser.

_{1 Source: European Cloud Providers’ Local Market Share Now Holds Steady at 15% | Synergy Research Group, Statista, Cloud computing market leaders – Global overview
2 Source: Renewable energy targets - European Commission
3 Baseload: the minimum level of electricity damand that a power grid must be able to mee at any given time.}