Yesterday, we talked about the building burdens Europe is absorbing, to maintain access to safety (U.S. security guarantees), stability (the dollar and U.S. capital markets), and markets (the U.S. consumer).

This is the "political alignment" by consequence, we've talked about. 

Withdraw all the backstops. Let the bills come due (i.e. defense). Let the energy shock expose Europe's energy dependence. Let the European financial system work through stress without the Fed's dollar liquidity assistance. 

Let the political class face the consequences of the costs their voters are no longer willing to pay.

With that, let's revisit an excerpt from my April 27 note …

With a liquidity crisis coming down the pike in Europe (accelerated by the energy shock), this time without the backstop of the world's most powerful central bank (the Fed), the Brussels political class has only two paths.

 

Path 1) They can align with Washington, which would mean admitting that their policies — open borders, climate agenda, deindustrialization, energy dependence, dismantled defense capacity — destroyed Europe's competitiveness.

 

If they do that, they relinquish their power grip, and likely end their political careers.

 

Path 2) They accept Chinese liquidity and solvency support in exchange for becoming the next debtor consumer market for Beijing.

 

Trump's strategy has seemingly been to squeeze them economically and financially (by the vulnerabilities of their own design) until the costs of the current leadership become unbearable … and the people of Europe deliver their own change of leadership.

 

With that in mind, "change" seems to be underway. 

Britain's Prime Minister resigned two weeks ago, with defense under-funding among the triggers.

Germany's Chancellor just broke his own party's decades-old balanced-budget religion to fund rearmament.

And now the second-largest economy in the euro area is headed toward a 2027 election with a nationalist (Marine Le Pen) potentially at the front of the field.

One by one, the personnel of the old regime are exiting or converting.

This morning's Financial Times front page laid it out in one frame: the Le Pen ruling, NATO countries unveiling billions in defense deals "to mollify Trump" (their words), and a feature asking how Europe would fight without America.

Political regime change isn't a risk to Europe's realignment. It's probably the only way alignment happens.

Meanwhile, we have more meetings in Europe on the agenda this week — to discuss how they will fund trillions of euros of defense, AI infrastructure and energy spending, without exposing solvency and liquidity vulnerabilities in the weaker constituent countries of the euro zone.

The market question is not whether Europe can discuss, plan and announce the spending, it's whether they can fund it.

P.S. Pro Perspectives is the daily note — the macro, policy and market structure work that ties everything together. To see how that work gets applied, we manage two model portfolios with documented, multi-year track records: Billionaire’s Portfolio and AI-Innovation Portfolio. Different strategies. Complementary research. Explore the platforms below…