The Great Sobriety: Europe’s pivot from aspiration to armour

Davos 2026: the end of the holiday

The era of European holiday history is over.

For three decades, the continent operated on a comfortable delusion: that economic integration was a substitute for hard power, and that the American security guarantee was a law of physics rather than a political choice.

Davos 2026 shattered that illusion.

The 56th World Economic Forum was not a celebration of globalization. It was a wake-up call. The dominant theme was not saving the world, but saving ourselves.

Under the leadership of Chancellor Friedrich Merz and Commission President Ursula von der Leyen, the tone shifted from aspirational rhetoric to structural urgency. The new doctrine is clear: strategic autonomy is no longer a slide deck for 2030. It is a survival mechanism for today.

Vulnerability is no longer theoretical.

The geopolitical shocks of early 2026 (specifically the aggression in the Arctic and the renewed volatility of US foreign policy under President Trump) have stripped away the final layers of European complacency.

Von der Leyen calls it an urgency mindset.

The reality is simpler: Europe has realized that you cannot regulate your way to relevance.

The return of hard power

Security is the baseline of all prosperity. Without it, markets are just targets.

The most consequential development at Davos was the shift in defence spending from a budgetary nuisance to a structural necessity. The NATO baseline of 2% of GDP, established in 2014, is dead.

The new floor is 5%.

Member states are endorsing a commitment to reach 5% of GDP in defence-related spending by 2035. This is not a tweak. This is a remilitarization of the continent.

Poland is the pace-setter, already allocating nearly 5% of GDP in 2026 to build the most modern army among European countries.

But spending is only half the equation. Procurement is the other.

Currently, 78% of EU defence procurement is sourced from outside the Union. 63% comes from the United States.

In a world where alliances are transactional, this dependency is a strategic suicide pact.

Checkbooks are not shields.

If Europe spends €800 billion but buys American kit, it is not building autonomy. It is subsidizing a foreign industrial base that can be cut off by a tweet.

The Arctic shock clarified this. When President Trump threatened tariffs on Denmark linked to Greenland's status, the message was received in Berlin and Paris: US security guarantees are now conditional on economic compliance.

The response must be industrial. Defence spending must become the engine of European re-industrialization.

Consolidation is happening. Three defence-tech start-ups have already reached unicorn status. The signal to the market is violent and clear: the peace dividend is gone. Invest in the shield.

The economic pivot: the "Mother of All Deals"

While defence dominates the headlines, the tectonic plates of trade are shifting faster.

Europe is finally looking past the Atlantic and the Silk Road.

Days after Davos, the EU concluded negotiations on a free trade agreement with India. This is the mother of all deals.

The metrics are staggering:

• A single market of 2 billion people
• Tariffs on 97% of EU goods eliminated
• Duty savings of €474 billion annually for European exporters

This is not just commerce. It is grand strategy.

By locking in access to the world's fastest-growing major economy, Europe reduces its lethal exposure to US protectionism and Chinese coercion. It creates a third pole of economic gravity.

Simultaneously, the internal market is being forced to grow up.

Chancellor Merz diagnosed the sickness plainly: We have become the world champion of overregulation.

President Macron was equally blunt at Davos, warning that today's Europeans are too naïve about their open market when no other major economy offers the same access without reciprocity. Nobody can access the Chinese market as people are accessing the European market, for sure.

The fragmentation of 27 national regulatory regimes is a tax on power. It keeps European companies small while American and Chinese giants scale effortlessly.

The cure is EU Inc.

The proposal is radical in its simplicity: a unified company structure allowing rapid online registration with a single rulebook across all member states. No more navigating 27 different insolvency laws. No more friction.

A protected market is a museum; a unified market is an arsenal.

The tech sovereign: physical AI

Europe lost the cloud war. It is currently losing the Large Language Model (LLM) war.

But the next war is for the physical world. And that is a war Europe can win.

Nvidia CEO Jensen Huang delivered the critical insight at Davos: robotics is a once-in-a-generation opportunity for Europe.

The logic is sound. The US dominates digital AI (software, social, search). But the next wave is physical AI (intelligence deployed in manufacturing, logistics, and autonomous systems).

Europe has the installed base. Siemens, Mercedes, Volvo, Schaeffler. These are not legacy anchors; they are the platforms for the next industrial revolution.

However, intelligence requires energy.

You cannot train models or run autonomous factories on intermittent wind and prayer.

This reality has forced a nuclear renaissance. Ideology has collided with physics, and physics won.

Sweden, Romania, France, and Finland are expanding capacity. Even the most hesitant political actors are conceding that baseload power is a prerequisite for digital sovereignty.

Energy security is AI strategy.

If Europe fails to lower electricity costs and guarantee supply, the physical AI revolution will migrate to where the joules are cheap.

A doctrine of capacity

Europe must stop acting like a referee and start acting like a player.

The path forward requires three simultaneous manoeuvres.

Industrialize defence

Stop treating defence budgets as distinct from industrial policy. They are the same thing.

The Commission must enforce a Buy European preference for the new 5% GDP targets. Create a DARPA-style mechanism to funnel defence funding into dual-use technologies (AI, space, materials). If a weapon system is bought from the US, it must come with technology transfer and local production requirements.

Unleash the single ,arket

The EU Inc. proposal must be pushed through immediately.

Member states blocking the Capital Markets Union are actively harming European security. Pension funds and insurers sit on trillions of dormant capital. Unlock it. Allow them to invest in European infrastructure and defence equity.

Scale requires capital. Capital requires a unified market.

The energy-compute Nexus

Designate AI factories and data-centers as critical infrastructure. Fast-track permitting for nuclear SMRs (Small Modular Reactors) to power these clusters.

Do not regulate AI into oblivion. The current AI Act is a masterpiece of bureaucracy that risks strangling the baby in the crib. Shift from pre-crime regulation to agile governance that monitors outcomes rather than banning tools.

Risks and Trade-offs

This path is not free.

The Fiscal Pain

Reaching 5% defence spending requires cuts elsewhere. The welfare state will compete with the warfare state. Populations accustomed to the peace dividend will resist. Political capital will be burned.

Governments will fall over this.

The internal friction

Small member states will fear EU Inc. is a cover for French and German corporate dominance. Hungary and others will use vetoes to extract concessions. The abolition of unanimity voting in strategic sectors will be framed as a loss of national sovereignty.

The external backlash

The US will not applaud European autonomy if it means lost sales for Lockheed and Boeing. Trump may retaliate with tariffs if Europe reduces its purchase of American arms. China will view the EU-India deal as a hostile alignment.

The future: February 12 and beyond

The test is not what was said at Davos. The test is what happens in Brussels on February 12, 2026.

The special EU summit will reveal if the urgency mindset is real.

Macron framed the choice starkly from the Davos stage: Europe must reject both passively accepting the law of the strongest (which leads to vassalization) and adopting a purely moral posture (which condemns the continent to marginalization). His message was unambiguous: we do prefer respect to bullies, we do prefer science to populism, and we do prefer rule of law to brutality.

If the leaders sign off on the Competitiveness Agenda and the defence investment pledges, Europe has a fighting chance. If they retreat into communiqués and working groups, the continent effectively resigns from history.

The choice is binary.

Integrate the market, arm the alliance, and power the grid. Or become a theme park for American tourists and Chinese investors.

Sovereignty is expensive. Vassalage is fatal.

Mundorama`s Workshop

The EU Inc. proposal is on the table. It unifies corporate rules but threatens local legal ecosystems. Here is our question:

We will review the most viable legal frameworks and dissect them in next month's digest.

The vacation is over.

Europe spent thirty years trading hard power for cheap gas and American promises. Both are gone.

Davos 2026 was the funeral for that world. Now comes the cost of reality.

Defence is not a budget line; it is the prerequisite for existence. A fragmented market is a gift to our rivals. Energy is the currency of the future, and we are broke.

We either build the reactor, the robot, and the rifle, or we wait for orders from Washington and Beijing.

Power abhors a vacuum. But it loves a divided Europe.

Get to work.