By Bas van Geffen, CFA, Senior Macro Strategist at Rabobank
President Trump has handed Putin a bit of a victory. In a two hours long phone call, the two leaders agreed that Moscow would work on a memorandum with Kiev. However, The US president did not put much pressure on Putin to reach an agreement that ends the war. Trump said he will leave Russia and Ukraine to settle their war through talks, essentially withdrawing as a mediator between the two countries. Yet, despite his earlier threats, Trump did not promise sanctions on Russia, nor aid to Ukraine. That could leave Ukraine –and Europe– to take the strain on all fronts.
Europe is still moving ahead when it comes to its own defense capacity – albeit slowly. Yesterday, EU member states agreed “in principle” to the European Commission’s earlier proposals to provide up to €150 billion in loans for rearmament, backed by the bloc’s shared budget.
The loans come with the precondition that at least 65% of the components are made by companies in the EU, Ukraine, Iceland, Norway, and Switzerland. Notably, US and UK manufacturers are not (yet) included in this list – with particularly France blocking their inclusion. This should ensure that the European economy benefits from the additional defence spending, and –by extension– it should advance the EU’s strategic autonomy by reducing international dependencies.
UK manufacturers could soon be included in the scheme, though. As part of a broader trade deal between EU and UK negotiators, the EU will “swiftly explore” the UK joining the €150 billion SAFE scheme.
In a joint statement, the European Union and the United Kingdom announced an agreement that spans, amongst other things, fishery, food, and energy. The UK-EU deal is being hailed as the biggest reset of trade ties since Brexit. However, the UK government estimates that material changes in these areas will increase GDP by 0.2% by 2040. That is another marginal gain, after the India FTA. As such, it can only be seen as limiting the damage of Brexit rather than a macroeconomic game changer.
Still, the deal signals a clear trajectory: the UK is moving towards a relationship with the EU that resembles Switzerland’s. It is formally sovereign, yet locked in ongoing negotiations and deeply enmeshed in EU frameworks across the entire economy. Indeed, former PM Johnson has already criticised the deal, calling PM Starmer “the orange ball-chewing gimp of Brussels.”
For one, the existing fisheries agreement between the UK and the EU has been extended from mid-2026 to 2038. In exchange, the UK will gain improved and simplified access to the EU market for agricultural and food products with no time limits. However, this comes with the condition that the UK must “dynamically align” with EU rules on sanitary and phytosanitary standards, food safety, and general consumer protection. That is similar to the arrangement Switzerland has. This alignment will also involve oversight by the European Court of Justice in specific areas and that’s politically sensitive.
Moreover, these conditions also mean that the UK cannot strike a trade deal with the US involving food and agriculture, unless there is no transshipment of goods, or unless the European Union signs a trade deal with the US that solves this issue. Is the UK about to sign a series of conflicting bilateral trade deals?
Of course, the British trade deal with the US included very limited agreements on agriculture, which perhaps already accounted for the fact that the UK-EU trade agreement would be very food-centred. That said, Trump has hailed his trade deal with the UK as “dramatically increasing access for [...] virtually all of the products produced by our great farmers,” and so he could certainly try to push a bit harder – which may still put the UK in a bind.
