In my last note, we talked about Warsh's debut on the international stage, at the ECB Forum in Portugal, and the placating tone from Europe's central bankers. "My friend Kevin," as Lagarde put it.
That was the public posture.
Today, the Wall Street Journal gave us the private one. The front page carried the rupture with America: European leaders, behind closed doors, venting about Trump, tariffs, Greenland and the breakdown of the old alliance.
Some in the room reportedly called it "therapy night."
Now let's look at the behavior.
Last week, Europe met Trump's July 4 trade deadline three days early.
The Turnberry Agreement (the U.S./Europe tariff agreement from last year) finally entered into force July 1. The terms: Europe accepted the 15% U.S. tariff cap on most European goods, and cut tariffs on U.S. industrial goods to zero.
For context, that bill had been frozen for the better part of a year. Once Trump put it on the clock, with a July 4 deadline, surprisingly the European bureaucratic machine got it done.
But the day after Europe complied, Trump attached the next condition: a 100% tariff on any country imposing a digital services tax on American technology companies, superseding any trade deal "whether implemented, signed, or not."
Remember what this is all about: tariffs are about restructuring global trade and realigning the world (away from China, back toward the U.S.).
Europe has been a hold out, if not moving in the opposite direction.
With that, Trump is forcing compliance by using the U.S. position of strength.
He used access to the U.S. consumer as leverage to get the trade deal done with Europe.
And for decades, Europe's security rested on the U.S. balance sheet. America provided the backstop, and under that umbrella Europe built the welfare state, the regulatory state, the green transition and the euro project.
Now Trump has made that umbrella conditional.
And when the security guarantee becomes conditional, the bill moves onto European government balance sheets.
That happened today.
The Financial Times reported that Germany plans to borrow more than 800 billion euros by 2030, mainly for defense.
This is big. This is Germany breaking its fiscal religion, because it has to. As Germany's finance minister said: "We can't defend ourselves against Putin with the Schwarze Null."
The question isn't whether Germany can finance rearmament. The question is what happens when the whole continent has to contribute to this new security regime. These countries enter this regime with high debt, low growth, and fragile politics.
