Episode 34: Preparing For A Less American Europe
This week’s NATO summit highlighted a historic shift within the alliance: Europe is spending more on defense than it has in decades, but money alone won’t answer the question of who will guarantee the continent’s security in the years to come. Matt Ince of Dragonfly Intelligence joins the show to lay out the challenges ahead. And then, states are moving aggressively to regulate so-called forever chemicals, creating a growing patchwork of labeling, reporting and product restrictions that companies are increasingly struggling to navigate. Clara Hudson explains.
James Rundle:You're listening to the Dow Jones Risk Journal Podcast. It's Friday, July the 10th, and I'm your host, James Rundle. This week's NATO summit highlighted a historic shift within the alliance. Europe is spending more on defense than it has in decades, but money alone won't answer the question of who will guarantee the continent's security in the years to come. Matt Ince of Dragonfly Intelligence joins the show to lay out the challenges ahead And then states are moving aggressively to regulate so-called forever chemicals, creating a growing patchwork of labeling, reporting, and product restrictions that companies are increasingly struggling to navigate. Clara Hudson explainsNATO leaders left this week's summit in Ankara having reaffirmed their commitment to higher defense spending and a stronger alliance, but the meeting also underscored a broader shift that has been building for years. As Washington asks European allies to prepare for a future less dependent on American military support, governments across the continent are scrambling to close capability gaps long filled by the United States. That raises a series of difficult questions that won't be answered by any summit communique. Can Europe turn new defense budgets into military capability quickly enough? Which parts of the US security umbrella are hardest to replace? And as Russia continues to expand its military production, is NATO entering a fundamentally different era, one in which Europe's security increasingly depends on its own industrial base, political resolve, and ability to deter aggression?Now, all of this took place against the prospect of renewed conflict in the Middle East, with President Donald Trump effectively declaring the fragile ceasefire with Iran over, and the countries trading drone and missile strikes in several nights of violence. Joining us now to discuss is Matt Ince, Associate Director at Dragonfly Intelligence. Matt, welcome back to the show. Thank you so much for being here. Matt Ince:Hi, James. Great to be here. James Rundle:So Matt, for decades, NATO's European members have relied on the US for some of the alliance's most important military capabilities. Now, Washington is scaling back what it can promise in a crisis. So is Europe facing a spending problem, a capabilities problem, or a bit of both?Matt Ince:I actually think Europe has largely solved the political problem of spending, and the summit showed that. European allies and Canada increased their combined defense expenditure by nearly twenty percent in real terms last year, and they've announced major new investments, and many are on track towards meeting NATO's spending target of investing five percent of GDP annually on defense by twenty thirty-five The challenge now is much more about capabilities and readiness. Money doesn't immediately become military power. It takes years to recruit personnel, train forces, expand industrial production, and field sophisticated systems like integrated air defense, long-range missiles, and intelligence platforms. So the real issue isn't whether Europe is spending more, it's whether it can generate credible combat power before the United States potentially reduces its role and before Russia has the opportunity to exploit that transition. That's why I prefer to describe Europe as entering a window of vulnerability rather than a spending crisis. James Rundle:Sure. Um, I do wanna come back to this issue of cost versus capability, but, uh, first, the Pentagon's cuts appear to affect the kind of forces Europe can't easily replace, such as strategic bombers, mid-air refueling craft, uh, naval assets, other similar high-end capabilities. So which gaps matter the most if NATO, say, suddenly has to respond to a Russian escalation? And is that actually a possibility in the next few years?Matt Ince:So the, the critical gaps aren't actually tanks or infantry. They're what defense planners tend to call critical military enablers, things like intelligence, surveillance, reconnaissance, aerial refueling, strategic airlift, missile defense coordination, logistics, and long-range precision strike capabilities. Uh, now it's these high-end enablers that allow everything else to function, and they're overwhelmingly provided by the United States. Europe simply cannot replace them quickly. That's just the reality. As for threats, I, I don't think that we should expect Russia to launch a large-scale conventional military invasion of NATO territory tomorrow. But the risk of more limited coercive action in is higher than it has been in decades. Several European governments now assess Russia could regenerate sufficient military capability to threaten NATO territory within two to five years if the war in Ukraine were to freeze or, or if a ceasefire were to be implemented. The more immediate concern, though, is hybrid warfare, and that's already happening within Europe at scale. So at Dragonfly, we've recorded a sixty percent increase in suspected Russian hybrid operations across Europe last year, affecting twenty-seven European countries. We're seeing everything from cyberattacks and disinformation to GPS interference affecting civil aviation, sabotage of railway networks, and suspected attacks on undersea energy and communications infrastructure in the Baltic Sea. So I think looking ahead, it seems likely, based on current trends, that these operations will be sustained, at least at current levels, while potentially becoming much more ambitious. More interference with critical infrastructure, more cyberattacks against defense industries and logistics, more disruption to satellites and communications, and probably more attempts to undermine political cohesion through disinformation and covert influence. Now, these are activities are attractive to Moscow precisely because they're relatively cheap, highly deniable, and create disproportionate political and economic disruption without necessarily triggering NATO's Article V collective defense clause or commitments. So I think the near-term challenge isn't preparing for a Russian land invasion into Europe, it's building resilience against a sustained campaign of gray zone activity designed to test alliance cohesion and gradually erode deterrence. James Rundle:I want to come back to the point you made earlier about cost versus capability. Um, you know, obviously European countries are spending much more on defense, but one of the themes in the reporting, both from Dragonfly and from our colleagues in the Wall Street Journal, is that money alone doesn't become deterrence. So What has to happen for those budgets to turn into actual weapons, ammunition, trained forces, the kind of resilience that you were just talking about for countering gray zone and hybrid activities?Matt Ince:So deterrence is really the product of three things, industrial capacity, military readiness, and political credibility. Now, the money has largely been committed. Now European governments have to translate that into production, more ammunition, more air defense systems, more drones, and just as importantly, the logistics and workforces needed to sustain them. And they also need to simplify defense procurement, which is still highly fragmented and can lead to slow production timelines and drive up costs. So all of these things are, are key to building credibility. But the political dimension is just as important. Deterrence only works if an adversary believes allies will actually act, and that's where NATO faces perhaps its biggest challenge today. Now, the summit this week was clearly designed, in many respects, to project unity and reassure Washington that Europe is stepping up. The NATO Secretary General Mark Rutte, I think, did a great job at flooding the zone with positive news stories about these issues and in many respects, uh, took a, a leaf out of the Trump administration's playbook in, in that regard. Um, and, and that's important. And Trump's more positive rhetoric towards Ukraine and his announcement that the United States will license the production of Patriot interceptor missiles for Ukraine have also prompted cautious optimism that Washington may be shifting towards a more supportive position At, at the same time, those positive signals were overshadowed by continuing public disagreements over Greenland, President Trump's criticism of allies over their apparent reluctance to support US actions against Iran, and uncertainty surrounding future US military presence within Europe. Now, those issues inevitably raise questions about alliance cohesion. So for me, the message coming out of the summit was really quite mixed. Europe has become much more politically serious about defense, and that's clear. But political credibility isn't just about announcing investment. It's about demonstrating that allies remain strategically aligned and can make rapid collective decisions in a moment of crisis, and that's ultimately what Moscow will be watching. James Rundle:Yeah, that's interesting. On the geopolitical side, you know, the Trump administration argues that Europe needs to take primary responsibility for its own conventional defense, uh, so that the US can focus more on China and its other priorities. Matt Ince:Yeah. James Rundle:So is that a strategic correction, or does it risk weakening deterrence at a very dangerous moment?Matt Ince:Successive US administrations, not just President Trump's, have argued that China is America's pacing challenge and that Europe should assume greater responsibility for its own conventional defense. China isn't simply another competitor f-for America. It, it's the only regional, if not major power, with the economic scale, technological base, and military modernization program capable of challenging US global military primacy. W-we're seeing an unprecedented expansion of China's Navy, rapid advances in missile capabilities designed to push US forces further from the Western Pacific, major investments in cyber and space capabilities, and increasingly coercive behavior around Taiwan and the South China Sea. Now, these developments have profound implications, not just for regional security, but for global trade, semiconductor supply chains, and for the wider international balance of power. So from Washington's perspective, it makes strategic sense to concentrate finite military resources where it sees the greatest long-term challenge. The problem, however, particularly from a European perspective, is timing. If Washington reduces its military presence before Europe has developed the capabilities to replace it, deterrence becomes much less credible. So the issue isn't greater burden sharing. Most Europeans now accept they need to shoulder more responsibility for their own defense and security. The issue is managing the transition towards more balanced European-led NATO operating models without creating a dangerous capability gap that an adversary like Russia can exploit. James Rundle:Yeah, and on that topic, Russia has put much of its economy on a war footing while Europe is kind of still trying to expand production through peacetime political and industrial systems. So can NATO move fast enough, or is there still a mismatch between the urgency of the threat and the speed of the response?Matt Ince:I mean, that's really the central question. The summit had announced some genuinely important initiatives, counter-drone programs, long-range missile development, industrial partnerships But these are long-term investments. They're not going to transform Europe's military balance over the next twelve to twenty-four months. So the concern is really that Russia's military regeneration could outpace Europe's rearmament, particularly if there's a ceasefire in Ukraine that allows Moscow to rebuild its forces more quickly. So I don't think Europe faces a long-term military disadvantage. Collectively, it has a much larger economy and, and enormous industrial potential. The danger lies in the transition period, so the race between Russian regeneration and European rearmament, and that's why the next few years matter so disproportionately. James Rundle:And in that transition period, how much does uncertainty itself damage NATO? E-even if the US remains inside the alliance with significant commitments, what happens when allies can no longer be sure what American forces will be available in the first days and the first weeks of a crisis?Matt Ince:I mean, this is quite significant because deterrence is fundamentally about perception. For decades, NATO's strength rested largely on certainty. Moscow assumed that an attack on one ally would rapidly trigger overwhelming American involvement. If that certainty becomes ambiguity, if Russia begins to question what US forces would actually be available in the opening days of a crisis, that changes the strategic calculation. Now, ironically, uncertainty can sometimes deter adversaries, but uncertainty among allies weakens deterrence because it complicates planning, slows decision-making, and raises doubts about collective resolve. That's why alliance cohesion is itself a military capability. James Rundle:And Matt, one of the, the big developments on the sidelines of the conference was yet more exchanges of fire between Iran and the US, with Iran launching strikes against targets in Bahrain, Kuwait, and Qatar, uh, the US striking dozens of targets in Iran. Uh, President Trump also said he regards the ceasefire as effectively over. Is this development just more posturing, more tit for tat, or is it something more structural?Matt Ince:The immediate military exchanges are strategically significant, but the bigger story is that President Trump is increasingly linking crises in different regions together. He used the Iran conflict at the summit to publicly test European allies, arguing that the United States comes to Europe's defense, then Europe should really also support the US operations elsewhere as well, and that reflects a much more transactional approach to alliances. Now, at the same time, the conflict has highlighted another strategic reality. The US has expended significant stocks of high-end interceptors and precision munitions in the Middle East, which reinforces Washington's desire to prioritize resources for the Indo-Pacific and the potential competition with China. So this wasn't just about Iran. It also reinforces the broader US argument that Europe needs to become much more militarily self-sufficient. Now, looking ahead, a return to open conflict between the US and Iran remains unlikely. While the strikes this week have been intense, they're designed to avoid a wider escalation in many regards. What is perhaps more likely is that both sides reimpose competing maritime blockades in the Gulf as they look to pressure each other to make further concessions. So in other words, the memorandum of understanding between Tehran and Washington may be politically dead, but neither side appears eager to escalate into a much larger war. James Rundle:Yeah, for sure. President Trump even said, I believe, uh, in the same breath almost that the ceasefire was over, that he's happy for negotiators to continue talking. It's, uh, part of this ongoing managed conflict that we've discussed on this podcast many times. I guess for a final question, Matt, the elephant in the room, we have the midterms coming up. We have a general election in the US the next few years. If there is a change in government in the US with a different attitude towards NATO, what do European and Canadian leadership have to consider now in terms of US reliability?Matt Ince:I think the biggest mistake would be to assume that one election solves the problem. President Trump has undoubtedly accelerated the shift, but the underlying trend predates him. For well over a decade, American strategy has sought to increasingly prioritize China and the Indo-Pacific. European governments should certainly welcome any future administration that is more supportive of NATO, but they shouldn't build their defense planning around the assumption that the United States will simply return to being Europe's permanent security guarantor. The strategic lesson from this week's summit is that NATO needs to build the capability to defend itself, not because America is abandoning NATO, but because America's priorities have fundamentally changed. That's likely to remain true regardless of who occupies the White House. James Rundle:That was Matt Ince of Dragonfly Intelligence. If you want to stay up to date on the Iran conflict and other geopolitical risks affecting the Middle East and energy markets right now, please subscribe to our Crisis Monitor newsletter. You can sign up at dowjones. com/crisis-monitor. Still to come, why the battle over forever chemicals is becoming a fight over state regulation, supply chain transparency, and what consumers should be told about the products they buy. That's after the breakWelcome back to the show. The regulatory landscape for substances known as forever chemicals because of their resistance to breaking down in the environment is becoming increasingly complex PFAS, or per- and polyfluoroalkyl chemicals, are found in a range of products from cosmetics to food packaging, to clothing and non-stick cookware. These harmful molecules have been detected in the open ocean and even in the tissue of animal species, as well as the drinking water that millions of Americans consume each day. The Environmental Protection Agency has recently introduced some limits on forever chemicals, and now states are getting involved. Connecticut's new labeling requirements took effect this month. New Mexico is facing a lawsuit over its own warning labels, and other states are pursuing a mix of reporting requirements, product restrictions, and outright bans as concerns about the chemicals' health and environmental impacts continue to grow. Clara Hudson of Risk Journal has been covering this closely and joins us now. Clara, welcome back to the show. Thank you very much for being here today. So these laws effectively ask companies to answer a deceptively simple question: Does this product contain forever chemicals? But how difficult is that question to answer in practice when you're dealing with complex global supply chains and thousands of different chemicals that might go into one product?Clara Hudson:It's a simple question if you're just answering, did we add forever chemicals into this product? You should know if you did that for water resistance or what have you. But a lot of companies will have to really search back into their supply chains and figure out if they have any goods that they need to flag, and that's where it can get tricky. Also, these rules cover a huge range of products from carpets to cosmetics and even dental floss. So this is going to affect so many different kinds of retailers and manufacturers. James Rundle:Right. One of the central tensions in your stories is that the EPA appears to be reconsidering parts of its framework for regulating these chemicals while states are moving ahead aggressively. What does that split screen regulatory environment mean for companies trying to build national compliance programs?Clara Hudson:It's a weird place for companies to be in because the rules are changing pretty much all over the country at the state and federal level, but they're definitely not aligned. So companies have to track all of these new state laws that are somewhat different in all of their various stages with a bunch of different deadlines. And then at the same time, they also have to reckon with the EPA's pretty complicated forever chemicals rollbacks because on the one hand, the agency is ending Biden era rules, but on the other, the Trump administration is saying that it might issue new ones. James Rundle:Let's talk about this New Mexico lawsuit in which companies have sued, arguing that the labels that are being required go beyond informing consumers and effectively imply danger Is this shaping up to be a broader legal battle over how far states can go in compelling companies to communicate environmental and health risks?Clara Hudson:So the New Mexico rule stands out because it requires companies to put a picture of a conical flask that says PFAS on a product, and it definitely looks like a warning for dangerous chemicals. But manufacturers are saying this is going too far really, and is basically supposed to scare consumers. Uh, but then again, it's no surprise that companies and trade groups want to do everything that they can to try and shape these rules themselves. James Rundle:And at what point does compliance kind of beget simplification? So if you're a company selling products nationwide, is it easier to accede to one kind of golden PFAS-free standard for every market, rather than navigate dozens of different state requirements?Clara Hudson:I think probably yes, because if you're shipping products to different states, that would just be such a headache to think about making a product a certain way in one state and then changing it for another. That just doesn't make any sense. So this is essentially a really big state push with the long-term goal of getting companies to phase the chemicals out in the end. And also, a single state law can essentially act as a national rule if it's coming out of a place like California or New York where most companies operate. James Rundle:For a final question, Clara, you know, stepping back, are forever chemicals becoming a model for how environmental regulation develops in the US? So states move first, industry challenges the rules in court, companies are left trying to navigate a growing patchwork while waiting for national policy to catch up. It, it feels like we've seen similar balkanized evolutions in areas such as, you know, privacy and artificial intelligence, for instance, where states have forged ahead with their own rules absent a federal standard. Clara Hudson:Yes, that's exactly it, and that's the formula that we've seen time and time again as regulations evolve. There are all of these fits and starts and deadline delays, and it really is a mess for companies trying to figure it out. And then there's an added element of a new administration coming in and trying to undo what the last one did, which is really just an endless back and forth and tweaking of rules. So it's never going to be a clear-cut path. James Rundle:All right. Clara Hudson of Risk Journal, thank you very much. Clara Hudson:Thank you. James Rundle:And that's it for this episode of the Dow Jones Risk Journal Podcast. This week's show was hosted and produced by me, James Rundle, and edited by Perry Cleveland Peck. Please do leave a rating if you enjoyed this episode, and of course, subscribe for new installments.