Europe, once hailed as a bastion of prosperity, democracy, and sophistication, now teeters on the edge of strategic vulnerability. A series of decisions, from commerce to defence, has led the European Union into a protracted economic malaise. The acceptance of severe tariffs imposed during the U.S.’s “America First” policy, the rapid escalation of military expenditure (not least on U.S. hardware), and the deep cuts to social investment collectively threaten Europe’s political economy. Sanctions on Russia, though shown as intended to uphold principles, have backfired. Now, Europe’s place on the world stage is being eroded.

 

Transatlantic trade and diplomatic foundations: A historical overview

 

Post-war cooperation and institutionalising trade

Europe and United States relations grew from wartime alliances to more structured collaboration. Formal diplomatic engagement began in earnest in the 1950s, with U.S. interactions with the European Coal and Steel Community in 1953, and the establishment of dedicated EU and U.S. economic delegations by the early 1960s. Trade liberalisation found impetus in historic multilateral rounds, such as the Kennedy Round of the 1960s, where U.S. legislation enabled tariff adjustments and encouraged Europe to be treated as a unified trade partner. Later, the Uruguay Round, culminating in the 1994 Marrakesh Agreement and the formation of the World Trade Organization (WTO) in 1995, marked a landmark leap for global open trade, benefitting the evolving European bloc.  

By the mid-1990s, Europe and the U.S. had constructed the largest bilateral relationship worldwide. In 1996, two-way trade in goods and services reached approximately US$400 billion; investment ties were even stronger, with EU and U.S. firms each subject of hundreds of billions in FDI, and millions of jobs mutually reliant on each region.

 

Attempts at strategic integration

Beyond multilateral structures, there were regional attempts to deepen ties. The Transatlantic Economic Partnership (TEP), launched in 1998, sought to break down trade barriers across goods, services, intellectual property, and procurement. However, persistent regulatory divergences, protectionist instincts (especially around agriculture and GMOs), and political resistance often blunted progress.

 

A fracture in the alliance

By 2025, the transatlantic alliance had splintered. The re-election of Donald Trump heralded a shift to “America First”, punitive tariffs, open disdain for multilateralism, and scepticism towards European cooperation. High-profile speeches, such as that delivered by Vice President JD Vance in Munich, openly questioned EU legitimacy and demonstrated growing hostility. On 27 July 2025, the U.S. and EU signed a deal imposing 15% tariffs on most European exports, far from a fair compromise and generally seen as a forced concession.

 

Why Europe’s Consumer Base Hasn’t Provided a Buffer

Europe’s vast consumer base, comprising hundreds of millions of individuals across its member states, would, in theory, provide a significant buffer against external economic shocks by sustaining internal demand and fostering market stability. This sheer scale should serve as a cornerstone of resilience, enabling the continent to weather disruptions in global trade or external market volatility. Yet, persistent structural vulnerabilities, including fragmented market integration, sluggish productivity growth, and regulatory complexity, have prevented this theoretical stabilising mechanism from functioning effectively. These systemic weaknesses not only diminish the purchasing power of households but also constrain the capacity of businesses to adapt and innovate, leaving the European economy exposed to cyclical downturns and external pressures.

 

Overregulation and productivity drag

Despite a strong consumer welfare model, Europe’s competitiveness is hobbled by regulatory complexity, high taxation, and inflexible labour markets. As noted by The Wall Street Journal, economic inertia, especially in Germany, is aggravated by high welfare burdens and an unwillingness to reform.

 

Demographic decline and labour shortage

A shrinking working-age population, projected to decline by around two million annually through 2050, undermines economic dynamism and makes sustaining social supports increasingly difficult.

 

Weak single market integration

While the EU’s internal market is extensive, barriers remain: licensing, taxation, and national regulations still fragment the bloc. Mario Draghi’s rebuke, “You say no to public debt… You can’t say no to everything”, underscores the internal reluctance to complete foundational reforms.

 

The Tariff Trap: What Europe Gave Up

 

European exports hit by 15% US tariffs

The July 2025 agreement imposed a blanket 15% tariff on European exports to the U.S., a drastic departure from pre-existing duties that averaged well below 5% for EU goods.

 

Economic fallout

Germany, Europe’s heavyweight, slipped into a recession by mid-2025, contracting by 0.3% in Q2 alone, largely due to reduced U.S. demand and tariff-induced disruptions. Growth forecasts for the EU plummeted, with GDP growth anticipated under 1% for 2025, and only modest recovery expected thereafter.

 

Strategic weakening

These tariffs are not incidental, they are strategic instruments. Germany’s finance minister warned that such burdens harm both U.S. and European interests alike. Yet Europe, lacking economic countermeasures, appeared strategically defenceless.

 

Conclusion:
Europe’s economic decline is neither sudden nor accidental but rather the culmination of decades of structural rigidity and an over reliance on external partnerships, particularly with the United States. The imposition of punitive tariffs in 2025 did not create these weaknesses; it merely exposed their depth and revealed how vulnerable the European economy had become to external pressures. An incomplete internal market, persistent demographic decline, and burdensome regulatory frameworks have steadily eroded the continent’s capacity to absorb shocks and adapt to global competition.

This economic fragility has far-reaching implications beyond growth and trade. It has constrained Europe’s ability to assert itself strategically and has left it increasingly dependent on external powers, both for energy security and defence. As fiscal resources have been redirected towards urgent military commitments, the social contract that once underpinned European cohesion has begun to fray. The cracks in Europe’s economic foundations are now mirrored in rising social polarisation, political volatility, and a creeping sense of disillusionment among its citizens.

Without comprehensive reforms aimed at revitalising competitiveness, deepening integration, and fostering strategic autonomy, the European Union risks continuing its drift towards economic stagnation and diminished global relevance. These structural vulnerabilities provide the backdrop for the next phase of Europe’s trajectory: a turn towards militarisation and austerity that, while intended to safeguard security and stability, threatens to exacerbate social tensions and weaken the very foundations of the European project.

 

This is the first of a series of three articles on the subject. The second will be printed next week.

 

Professor David Zammit serves as both a lecturer and the Rector of Pro Deo International University in Italy. He has been actively engaged in the field of education for the past 35 years. Throughout his career, he has delivered lectures in various countries and has participated as a speaker at numerous symposia.