New Risks Put Europe Under Pressure

Given the pervasive sense of uncertainty across Europe, the continent’s ability to manage risk and build resilience is a striking testament to the region’s residual power and experience in crisis management. Nine of the Top 10 countries in the Global Investment Risk and Resilience Index are in Europe, with only 4^th-placed Singapore lying outside ‘the old world’. But for all its steadiness, Europe’s resilience is far from assured.

In the USA, the Trump presidency has visibly increased risk, especially for non-US citizens. Shifts in policy are so numerous and varied it is difficult to keep up with where the country might be heading next. By contrast, several of Europe’s major challenges have their origins outside the continent, not least being President Donald Trump’s unpredictable tariff policies.

A Continent Steeped in Crisis Management

It was after the full-scale Russian invasion of Ukraine in February 2022 that Europeans demonstrated their ability to adapt to tectonic shocks.

Even with access to cheap Russian gas supplies before the invasion, Europe was paying more for energy than any other region — notably the USA, where costs are on average four times lower. Imports of Russian energy kept prices at acceptable levels in countries such as Austria, Germany, and Hungary, which were up to 80% dependent on oil and gas from their eastern neighbor.

After the Ukraine war broke out, however, Western sanctions on Russia demanded that Europe switch suppliers. The continent managed to wean itself off Russian energy sources in a very short period, with a speed and adroitness that took many around the world by surprise, including most Europeans.

Equally, Europe combined with the Biden administration in the USA to offer significant financial and military support to Ukraine in a show of unity that, again, surprised many. President Vladimir Putin issued the order to invade on the assumption that Europe would accept a status quo that would see Russia swallow part of Ukraine and dominate the rest. The opposite happened. Indeed, it is arguable that Putin’s actions have strengthened Europe’s resolve and revealed a determination that many believed the European Union did not possess.

The Northern Model of Stability

Predictably, Switzerland and the Nordic states dominate the top tier of the Global Investment Risk and Resilience Index. The key to their success lies in reliability, smoothly running state mechanisms, and predictability. Notably, the index aligns closely with three other revealing metrics — first, those assessing public perception of corruption, second, those measuring the population’s general happiness, and third, those tracking social and income inequality.

Low levels of corruption reflect significant public trust in the rule of law. Investors in the perennial favorites — Denmark, Sweden, Finland, Norway, or Switzerland — can be confident that there will be no corrupt authorities trying to extract ‘additional’ taxes. By contrast, southern European states like Italy and Spain, although maintaining a ‘favorable outlook’ classification, languish in 36^th and 46^th places, respectively, in the Global Investment Risk and Resilience Index, a position influenced in part by their failure to curb high levels of debt.

A similar pattern emerges when viewing nations through the lens of national well-being and social cohesion. This has multiple causes but important among them are trends which underline countries’ success in the Global Investment Risk and Resilience Index. Personal and asset security is extremely high in the Nordic countries and Switzerland, which also have comparatively low Gini coefficients, reflecting minimal income inequality, which contributes to social harmony. Of course, much of this balance has been achieved by the imposition of relatively high levels of income tax.

Polarization and Peril in the East

The further east we move across Europe, resilience indicators decline as geopolitical risk, political polarization, and institutional fragility increase. Poland, for example, currently boasts one of the most dynamic economies in the European Union and continues to attract considerable foreign direct investment. Yet the country struggles with persistent political instability born of deep divisions between its conservative east and liberal west. This has led to dramatic and unsettling policy swings, especially given the constitutional power conferred on the president, who can block any legislation. Even more concerning is the proximity of the war on the territory of its close neighbor and ally, Ukraine.

All European countries have started to divert huge sums into the arms industry as fears grow of a future clash between Russia on the one hand and Europe and NATO on the other. The USA under Trump is no longer seen as a reliable or predictable ally. In recognition of this, Europe is investing in its resilience.

Resilient, for Now

Despite the ongoing uncertainty following Russia’s invasion of Ukraine, Europe’s housing market is once again becoming a magnet for outside investors. The continent remains the world’s largest consumer market, with a mighty economic influence globally.

But Europe’s resilience will be tested in the not-too-distant future. Budgets are under pressure everywhere across the continent as the social welfare model that has until now proven so successful appears to be buckling at important stress points. The continuing political crisis in France and President Emmanuel Macron’s inability to pass a budget are perhaps the most obvious reflections of this. Outside the European Union, Britain, too, is struggling. With political pressure to curb immigration growing, European countries have yet to find a solution to stagnant productive rates.

Furthermore, the region has failed to develop the hi-tech industries that now set the USA and China apart from the rest of the world. As a result, it appears increasingly reliant on American software products and Chinese battery and electric vehicle technologies. This is a potential threat to Europe’s global standing. Resilient in the short term, it remains to be seen whether it can maintain its leading position in the Global Investment Risk and Resilience Index over the coming decade.