We've had a turbulent week, but now the game has changed. Naturally, the Euro is strengthening because the European Union has stepped in to replace the Americans, and it is likely that in the future, the EU will finance this war both with weapons and money. But most importantly, if arms production ramps up—which is what the market is pricing in—it won't just be about weapons, but also missiles, tanks, and the entire defense industry essentially coming to life. As a result, this will pull the European Union out of recession and, moreover, put it on a strong growth trajectory.
However, what we are seeing now in the Euro exchange rate will last only until new news emerges—perhaps that Ukraine is willing to reach an agreement with the United States, that the U.S. will provide the necessary defense, or, in a worse scenario, that Ukraine capitulates because it cannot hold out long enough for the European Union’s defense industry to supply it with sufficient weapons for defense.
Ironically, this latter scenario might actually be the better one because, even in this case, the European Union’s ambition to arm itself would remain—perhaps even grow stronger. As a result, the industry would not come to a halt, and things would not return to the old normal.
Not to mention that the GDP of the United States has suddenly taken a downward turn. Growth is much worse than expected, as confirmed by data from the Atlanta Fed. Furthermore, the U.S. trade policy—affecting China, Mexico, Canada, and soon, likely Europe—is reshaping global market relations. This includes China moving closer to Europe and Europe strengthening ties with India.
More extreme scenarios could also arise