Every: Peace for our dime

Rabobank

Peace for our dime

Market Comments

Authored by Michael Every for Rabobank

I’ve said it before recently, but there are decades where nothing happens and weeks where decades happen: this is not one of those decades, but this is possibly one of those weeks.

First, Ukraine. The follow-on from Friday’s public White House meltdown between President Trump, Vice-President Vance, and President Zelenskyy --which is how diplomacy often works when the cameras are off-- was another emergency European summit in London attended by all those whom the US and Russia have already cut out of negotiations, plus Canada, and at which Zelenskyy was literally embraced.

The easy work there was Zelenskyy again saying he’ll sign the US minerals agreement deal, as Trump and others make clear he has no other choice. The unresolved hard work is still what blew up Friday’s meeting: Zelenskyy’s demands for security guarantees and a reported desire to fight on rather than offer big concessions for a peace deal without them.

Europe is saying that it will step up to make Ukraine an “indigestible steel porcupine.” Their unfolding proposal is a one-month pause in air, sea, and energy attacks, followed by a “Coalition of the willing” sending troops to Ukraine to enforce a ceasefire. Yet that proposal unfolds when Europe admits it still requires a US backstop, with the implication being NATO Article 5 protection.

As Elon Musk agreed with a call for the US to leave NATO and the UN, that may not fly as it would directly link America to a war they are trying to step away from to focus on Asia; the US is offering the presence of its businesses on the ground alone to deter Russian attacks. Moreover, Russian has previously said foreign troops in Ukraine is a casus bello: even the term “Coalition of the willing” was last used during the 2003 Iraq war which Russia opposed as illegal. That means that Europe would be embracing a strategy that risks direct confrontation with Russia unless the latter was utterly convinced that this could not work due to Europe’s ability to project overwhelming force. Even there we see huge risks: France and the UK could already extend their nuclear umbrellas to Ukraine, for example, but obviously won’t for fear of escalation, even as France considers doing so for Europe: so, what will Europe be prepared to do on the conventional front?