With recent talks in Alaska renewing discussion about a future path to peace for Ukraine, Portfolio Manager Robert Schramm-Fuchs considers how large-scale post-war reconstruction and defence investment could reshape the prospects for European equities.
The past few weeks have seen some encouraging signs of active diplomatic efforts, to try and restart stalled talks to end the Ukraine-Russia war. US President Trump has made much of his undoubtedly ambitious agenda to bring about a negotiated settlement. While the prospect of a swift end to conflict still seems remote, it remains a significant factor in our views on the long-term prospects for Europe and its economies. Here, we summarise some of our thoughts.
Europe at the heart of security initiatives
Following the recent summit in Alaska between the US and Russia, security guarantees for Ukraine have been at the forefront of discussions as western leaders try to build a post-conflict framework that could present a credible, sustainable ceasefire and a path forward for an independent Ukraine. While there is no clear detail, US President Trump’s comments suggest that he does not intend to put US ‘boots on the ground’ as part of any solution. Rather, it seems Europe would be expected to primarily fulfil this role, with the US potentially sharing intelligence and air support.
The White House originally claimed that Russia might agree to the US offering ‘Article 5-like protection’, echoing a core NATO principle[i], where an attack against one or more members is considered an attack against all. More recently, we saw suggestions from the US that it was ready to contribute access to critical security systems, intelligence and support, in what is arguably a significant shift from the US government[ii].
An unavoidable counter argument is that Ukraine has a history of security agreements that have failed in the modern era, from the Budapest Memorandum to the Minsk Agreements, while concessions over Ukraine’s territory could arguably undermine long-term confidence in global security and economic stability. To offset these concerns, Ukraine would certainly seem to have a strong case to demand more robust guarantees to ensure its future security.
In the rest of the article, we discuss why Europe may be a partner for reconstruction efforts, our opinion that European defence is a long-term theme, and why Europe's banking sector is well-positioned to benefit.
