Europe’s wakeup call: what does geopolitical uncertainty mean for the UK and its neighbours?

In economic terms, the continent is well-placed to manage the impact of a global trade war, according to Barbara Teixeira Araujo, an economist at Moody's Analytics. A trade war will be painful, she said, “but it won’t cripple the economy. We don’t have recession in our baseline.”

Europe’s economic fundamentals have recovered since the Covid pandemic, with manageable inflation levels, sturdy wage growth, tight labour markets and interest rates coming down, she added. Combined, these will support consumer spending and investment and, ultimately, “keep a lid” on the impact of an escalating trade war.

However, businesses should be mindful of other, low probability high-impact scenarios, delegates heard. For example, a trade war on services or a major fiscal crisis in the U.S. would have serious consequences for European economies.

Ukraine: is more disruption to come?

Turning to the war in Ukraine, “naïve” and “weak” leadership from the Trump administration is playing into Putin’s hands and prolonging the war, said Sir Richard Shirreff, a retired army General and co-founder and managing partner of Strategia Worldwide: “There will not be any lasting peace in Ukraine until Russia recognises Ukraine sovereignty…and that will never happen,” he said.

Now that America “cannot be relied upon as an ally”, the onus is on Europe, NATO and Canada. Europe needs to recognise that peace will only happen if Russia is forced to accept defeat, he added. “And that will only happen when there is a properly thought through strategy by NATO, by the West.”

There is growing concern that the conflict may have a more direct impact on the rest of the continent as Russia tries to undermine Europe’s resolve, warned Sam Wilkin, director of political risk analytics at Willis Towers Watson.

“It could be a risky strategy for Russia because it could unite Europe but the scenarios we see are things like cyber-attacks or cutting pipelines…you can do a lot more to disrupt life in Europe.”

Amid the turmoil, however, there is opportunity. With the world economy undergoing its greatest stress test since Covid, Europe is facing the “biggest wakeup call in a decade.” It is an opportunity to improve productivity – a chance to rewire defence, capital markets, the monetary union and supply chains.

Risk and insurance takeaways:

• Europe has strong economic fundamentals;

• The Ukraine war has the potential to impact Europe more directly;

• Businesses should consider low probability, high-impact scenarios, such as a trade war on services or a fiscal crisis in America.

The Panel: Geopolitics 12 months on from Edinburgh – Global Transformation, Geopolitics Reshaped

Moderator: Clive Myrie, BBC

Speakers: Jerome Jean Haegeli, Group Chief Economist, Swiss Re; Stephanie Ogden, CEO - UK and Ireland, HDI; Tim Shipman, Former political editor and current chief political commentator of The Sunday Times; Sir Richard Shirreff, Co-Founder and Managing Partner, Strategia Worldwide; Barbara Teixeira Araujo, Economist, Moody's Analytics; Sam Wilkin, Director of Political Risk Analytics, WTW.