As global tensions rise, Europe faces a stark choice—build a defence force and reshape global finance or risk irrelevance.
The international system established at Yalta in 1945, which led to a world order dominated by two superpowers, is disintegrating. The Cold War ushered in a period of relative stability, avoiding a nuclear confrontation between the United States and the Soviet Union in 1962. The fall of the Berlin Wall, facilitated by Mikhail Gorbachev’s initiatives, allowed for a temporary phase of missile disarmament in Europe. However, in the twenty-first century, the rise of China as a formidable economic and political power has heightened tensions between smaller and larger nations. An anarchic multipolar world has emerged. Russia’s invasion of Ukraine has brought war back to Europe—where, in 2012, the European Union was awarded the Nobel Peace Prize for having “helped transform most of Europe from a continent of war to a continent of peace.” Geopolitical analysts now describe the current global disorder as a “Clash of Empires” (Guénolé, 2025). Will a catastrophic nuclear war become inevitable? And who, if anyone, will emerge as the dominant global power?
The election of Donald Trump as President of the United States starkly revealed a shift that had been developing for decades. At the end of his presidency, Barack Obama remarked in an interview (The Atlantic, 2016): “Almost every great world power has succumbed to overextension… Every time there is a problem, we send in our military to impose order. We just can’t do that.” Regarding European allies, he added: “Free riders aggravate me.” Trump has since made clear that US-EU relations need to be reassessed, engaging in direct dialogue with Russian President Vladimir Putin to negotiate potential peace in Europe—without including the EU or Ukraine in the discussions. A new Iron Curtain may once again divide Europe and Russia. Meanwhile, the European Union has failed to put forward its own peace initiative, exposing a glaring power vacuum. This void will not remain unfilled indefinitely; other global powers are waiting for the opportunity to exploit the riches of the old continent. The EU must decide whether it will assert its influence or fade into irrelevance.
The EU’s survival will depend on its ability to lead a coalition of nations committed to rebuilding a peaceful international order. This means revamping the institutions originally designed by Franklin D. Roosevelt’s administration ahead of the Yalta Conference—the Bretton Woods system, the United Nations, and the World Trade Organisation (initially the General Agreement on Tariffs and Trade, or GATT). The dollar has become an inflationary global currency, enabling the United States to accumulate dangerous levels of public debt and weaponise its financial system through economic sanctions. The UN Security Council remains paralysed by competing vetoes, and the WTO’s dispute resolution mechanism is blocked, rendering international trade regulation ineffective. Two urgent issues stand out for Europe and the world: the creation of a European defence force and the reform of the international monetary system.
European Defence
The EU’s efforts to build a common defence face the same structural obstacles as its Economic and Monetary Union. The Council of Ministers’ undemocratic voting system, in which any member state’s veto can derail collective decisions, has long hindered progress. In the late 1970s, European monetary coordination began with the European Monetary System (EMS), but it was only after German reunification that Berlin agreed to establish the European Central Bank and introduce the euro. Similarly, EU governments remain stuck in a deadlock over coordinating national defence policies. Mario Draghi has criticised this approach in his reports and speeches to the European Parliament, arguing that the EU must evolve into a fully-fledged state. A state is recognised on the international stage only if it has an autonomous military force—a European army commanded by a European general, under the authority of a democratic European government. This would also necessitate NATO reform: currently, NATO operates under an American general, but European forces should be led by a European command structure accountable to EU democratic institutions.
Such a transformation requires political will within the European Parliament and a financial commitment through dedicated EU resources for defence. Establishing a European military is crucial not only for the EU to speak with one voice on the global stage, but also to bridge the political and cultural divides between the Union’s western and eastern members. Following the Cold War, it was essential to integrate former Warsaw Pact nations into the EU to prevent territorial disputes, as demonstrated by the violent breakup of Yugoslavia. However, citizens of eastern EU countries have not experienced the same post-war reconciliation processes as their western counterparts. Western Europeans had to overcome historical enmities, as exemplified by Franco-German reconciliation through the Schuman Declaration, which laid the foundation for European integration. The struggle to build a common defence force could foster a shared European identity and patriotism, cementing a supranational political community.
Across the world, nearly half the global population lives in federal states—such as the United States, Canada, Australia, Germany, Switzerland, India, and Brazil—where federalism is primarily a means of decentralising governance within nation-states. European integration, however, represents a unique model: a supranational federation with three tiers of citizenship—local, national, and European.
A New Bretton Woods
The EU lacks a unified military, but it does possess a supranational currency, the euro, which serves as an international reserve for many countries (as of 2023: US dollar 58.4 percent, euro 19.9 percent, yen 5.7 percent, renminbi 2.29 percent). The drawbacks of the dollar’s global dominance have long been apparent. Some economists have also criticised the instability of a world economy where total debt has reached 360 percent of global GDP and there is no longer a meaningful link between global savings and investment (de Larosière, 2022). Compounding these financial imbalances is the ecological crisis, which demands coordinated global policies to curb resource depletion across land, seas, and air. The United Nations should be equipped with its own financial resources to fund a comprehensive sustainability agenda, aligned with the seventeen Sustainable Development Goals. A portion of global military spending should be redirected towards environmental policies.
These objectives require reforming the International Monetary Fund by eliminating the US veto over Special Drawing Rights (SDRs), which were introduced in the 1960s through Robert Triffin’s initiative (Montani, 2024). SDRs currently comprise a basket of five currencies: the US dollar, euro, yen, renminbi, and pound sterling. The proposed reform would see national central banks adopt SDRs as a reserve currency for global trade and financial transactions, creating a global monetary area. Unlike Europe’s single currency, SDRs would not circulate domestically, allowing national currencies to remain in use—provided each government maintains a fixed exchange rate between its currency and SDRs. This would establish a single unit of account for international trade and finance.
The benefits of this system are manifold. First, emerging economies could access international loans at prevailing market interest rates, rather than being forced to issue sovereign debt at prohibitively high rates. Second, a universal carbon pricing mechanism in SDRs would enforce equal environmental costs for businesses worldwide, discouraging pollution arbitrage. Third, under UN oversight, the IMF could issue SDRs to support social policies in developing nations and finance global emergency responses, including pandemic relief, environmental crises, and ocean conservation.
Conclusion
In the early modern era, states wielded two fundamental powers: “the purse and the sword.” Today, the European Union lacks a “sword” but commands a powerful economic instrument—the euro. This gives the EU an opportunity to lead a peaceful transformation of international relations. The BRICS nations, now expanding, have expressed their support for “inclusive multilateralism.” This could provide the EU with crucial allies in the effort to establish a more equitable, sustainable, and peaceful global order.
Guido Montani is professor of international political economy at the University of Pavia. He is a former president of the European Federalist Movement in Italy. He founded in 1987, in Ventotene, the Altiero Spinelli Institute for Federalist Studies. His latest book is Anthropocene and Cosmopolitan Citizenship: Europe and the New International Order (Routledge, 2024).