Europe Cuts Welfare and Expands Defense—These Assets Stand to Benefit.

President Trump’s policy direction is transforming the long-stagnant trajectory of Europe. The term "European disease" is hardly new. For decades, Europe has prioritized welfare over growth, funneling the majority of its fiscal liquidity into redistribution rather than production—seeking an ideal of “equal life” for all. This resulted in weakened work incentives, declining competitiveness, and ultimately, growth relegated to the background. That is the essence of Europe’s long-standing malaise.

But that Europe is now changing. The catalyst? Donald Trump. Europe is simultaneously cutting welfare and expanding fiscal spending—funneling liquidity into the defense industry. This shift is not merely about responding to security threats. Rather, it reflects a tectonic shift in global strategy driven by Trump's “America First” doctrine, a transformation the U.S. has long demanded. A Europe that trims its welfare and reallocates resources toward defense is precisely the kind of partner Trump envisioned.

Europe’s welfare cuts are not simply about austerity. They are a strategic decision to channel limited resources into the most urgent priority: defense. Russia's threat is now tangible, and the war in Ukraine has exposed the post–Cold War European security structure as dangerously fragile. European countries are scrambling to procure real wartime matériel—tanks, shells, drones, ammunition, and other military equipment. These items are closely tied to existing industries such as steel, machinery, electronics, and logistics. Thus, when government funds flow into these sectors, it stimulates industrial realignment, job creation, and short-term growth across the continent.

The problem is that this is not “real growth.” Defense is still a secondary-sector industry. It lacks the productivity gains and exponential scaling power of advanced technologies. Europe remains fundamentally dependent on external energy. Without cheap and stable electricity, it cannot realistically pursue AI, semiconductors, or cloud-based infrastructures. With Russia’s gas supply cut off, Europe is substituting with American LNG—at far higher cost. This drives up industrial overhead, making high-tech sectors economically unviable. In short, Europe is incapable of a meaningful industrial upgrade beyond defense.

That’s why Europe’s liquidity injection is more like short-term stimulus than a genuine long-term growth engine. And ironically, this is exactly what benefits the United States. The Trump administration is pushing massive tax cuts, planning to inject over $5 trillion into the U.S. economy over the coming years. This raises concerns over national debt and a weakening dollar. If the dollar weakens, America’s financial dominance could be undermined. But if Europe voluntarily supplies liquidity and pushes the euro into a weakening trend, the U.S. can continue its aggressive monetary expansion while still defending the dollar’s relative strength. In effect, Europe’s liquidity becomes a shield for the dollar.

Moreover, Europe is becoming an export market for the U.S. Modernizing defense inevitably generates demand for AI, semiconductors, and drones—fields where the U.S. holds a dominant technological edge. As European countries modernize their military capabilities, they will need American-made components. The conflict with Russia becomes a catalyst for U.S. product demand. Additionally, as European industries scale up, they increase imports of American energy, raw materials, and technology. This strengthens the U.S. trade balance and deepens its global economic reach.

In essence, Europe is now voluntarily supporting the American hegemonic order—acting as both geopolitical ally and subordinate node in the U.S. economic network. America cannot fully cover the cost of its fiscal expansion with tariffs alone. But if Europe defends the dollar's value, purchases U.S. energy in bulk, and absorbs American exports, then Trump’s vision becomes reality. A fragmented, militarized Europe is not only acceptable to Trump—it is desirable.

This is why markets are responding positively. European liquidity injections are bullish for financial markets and boost demand for U.S. products—energizing the U.S. economy in the process. Meanwhile, countries like South Korea, China, and even some in the Middle East are also expanding domestic liquidity for various domestic reasons. In this kind of synchronized global easing, the chances of a near-term market crash are low. Now is a moment to ride the wave of risk assets and enjoy the global liquidity party.

However, markets are still grappling with valuation pressure. The high valuations in indices like the S&P 500 and Nasdaq are pushing capital toward lower-valuation assets—fueling a surge in Bitcoin, Ethereum, and other high-risk assets. This trend may persist until risk asset valuations exceed market expectations. But looking ahead to August or September, the U.S. Treasury is likely to issue a large volume of short-term debt to raise cash. That could create a temporary liquidity crunch. If rate cuts materialize in September, markets could quickly rebound—but until then, liquidity risk from the U.S. remains a lurking factor.

In short: enjoy the party, but cash out strategically.