The European Union is experiencing a period of rapid change and action, reminiscent of Lenin’s famous quote about weeks where decades happen. The bloc had been facing economic stagnation, exacerbated by tensions with the US and strained relations over a Ukraine peace deal. German Chancellor Friedrich Merz’s call for Europe to achieve independence from the US marked a turning point in the EU’s approach to economic growth.

Merz announced a bold plan to end stagnation in Germany, including unlimited borrowing for defense spending and a €500bn fund for infrastructure investment. This shift towards fiscal stimulus represents a departure from decades of budgetary conservatism and is expected to jumpstart the German economy with 1.5-2% GDP growth. Additionally, higher defense spending across the EU is anticipated as a response to strained relations with the US, potentially driving economic growth in the eurozone.

Meanwhile, in the UK, the Chancellor is set to present a Spring Statement with updated growth forecasts from the Office for Budget Responsibility. Tax rises and tariff-induced uncertainty are likely to result in lower growth forecasts, making it challenging for the government to meet fiscal rules. Despite the UK’s exit from the EU sparing it from potential US tariffs on European exports, studies suggest that the economy is still smaller than it would have been if it had remained in the EU.

With Labour pledging to reset the UK’s relationship with Europe and growing public sentiment against Brexit, closer ties with the EU could offer the UK economy a much-needed boost. While rejoining the single market and customs union remain red lines for the government, economists believe these positions could evolve over time. As the US becomes a less reliable ally, stronger links with Europe appear increasingly attractive for the UK.

Overall, the European Union and the UK are navigating a period of significant change and realignment in response to economic challenges and shifting geopolitical dynamics. The decisions made in the coming months will shape the future trajectory of these economies and their relationships with key trading partners.