Rabobank analysts say Europe is changing its geoeconomic strategy while dealing with a complex relationship with the United States. The report says the US is likely to use the Munich Security Conference to try to repair strained ties with the EU. Europe has agreed to join the US plan on critical minerals. This limits Europe’s scope for strategic autonomy. The European Parliament has also agreed to move ahead with an EU–US trade deal. EU capitals say cutting out US tech is not realistic. Separately, US-backed start-ups won a major German contract for military drones. Some supporters of the Mercosur deal are said to be worried about moving too quickly. The European Commission is expected to announce new security rules in March on access to public funding. These rules are meant to shut out Chinese firms in particular. The report also warns that the Munich talks could go badly, as they did last year. It says the US may respond strongly to recent EU moves against US tech firms and to claims of election interference. A conference report calls Trump a “demolition man” and says “most of Europe is watching the US’ descent into ‘competitive authoritarianism’ with rising concern or even horror”. The US ambassador to NATO said the US wants Europe to take primary responsibility for European defence as soon as possible, not only when it feels ready. The report mentions a short list of EU geostrategic options if Munich triggers a new crisis. The next Munich Security Conference is shaping up as a major make-or-break event for markets. It could either reset EU–US relations or trigger a significant new crisis. We can already see this uncertainty in the options market, where traders are using options to position for either outcome. The VSTOXX, Europe’s main volatility index, has risen to above 19 from lows near 15 earlier this year. This suggests traders are buying protection and preparing for a large move. This tension will affect the EUR/USD exchange rate. If the conference goes well and supports the transatlantic alliance, the euro would likely strengthen. If there is a public clash, the euro could drop sharply. One-month implied volatility for EUR/USD has risen to 7.5%. This shows options traders expect a wider-than-usual trading range in the coming weeks. We see a clear opportunity in the US push for Europe to manage its own security. That shift makes higher and sustained defence spending more likely and more lasting. Recent data supports this: new orders for European defence firms rose 18% year on year in the final quarter of 2025, and Germany’s 2026 budget is now set above 2.1% of GDP. This makes call options on major European defence contractors and related ETFs an attractive strategy. The EU–US trade deal, and ongoing tension over US tech companies, also create risks for European industrial and automotive stocks. Markets reacted badly to political messaging during the 2025 conference, which caused a short but sharp drop in the DAX. As a result, short-term put options on indices such as the Euro Stoxx 50 look like a sensible hedge for equity portfolios through the end of February. We should also watch for the EU’s new security measures in March. These are meant to limit Chinese access to public contracts. They are likely to create clear winners and losers across European green tech, 5G, and infrastructure. This may open the door for pairs trades: favouring European firms that are well placed to win these contracts, and avoiding those with supply chains that depend heavily on China.

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