The Real Davos Debate
analyses the implications of accelerated European economic militarisation if President Trump dumps NATO. The costs, financing and fiscal and monetary implications are grouped under the headings of:
- Accelerating EU defence spending to 5% of GDP in 3-5 years - rather than the 10 years in the current NATO agreements.
- Replacing the US contribution within a (Europeanised) NATO.
- Replacing the US Nuclear Umbrella with a European one,
The report delves into the options for financing this in terms of EU or Defence Alliance (incl UK and MNOrway etc) bonds, ECB monetisation, and taxes.
This is a very investable thesis. In summary this is how an investment strategy to deal with this scenario might look:
- Short EU Sovereign Debt – France is QS focus short.
- Long EU, Korean, Indian defence stocks (more spending will be sourced from them).
- Long EU Nuclear weapons supply chain. Short EUR vs AUD & SGD.
- Long yield steepeners (on the assumption that the ECB will be a part of the war effort holding both long and short rates down but more the latter).
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