The US has increased its pressure on Ukraine to pause the war by turning off military intelligence to it, removing Kyiv's ability to fire missiles into Russia. This action has further outraged and --given their reliance on US systems in NATO-- terrified Europe. Note President Eisenhower did the same vis-à-vis then-and-current ally South Korea in 1953, which didn't want to stop fighting; the US didn't want a direct war with China, or more inflation, and made it clear military aid would stop until an armistice was achieved. That frozen conflict seems where Ukraine-Russia is heading, especially as President Zelenskyy just said what rejected what the Russian terms for any formal peace deal (demilitarisation, formal renouncement of lost territories) would be.

Europe has added its own pressure on Zelenskyy as Germany's ministry of defence admits it can't supply more materiel to Ukraine either as it's out of stock. 

That underlines the need for the German announcement on infrastructure investment and rearmament yesterday, which saw 10-year Bund yields rise 31bp on the day, their worst performance since 1997. EUR jumped.

Ahead of today's EU ReArm summit President Macron addressed his nation, stating:

"Our prosperity and security have become more uncertain, and it must be said, we are entering a new era… if a country can invade its neighbour in Europe with impunity, then no one can be sure of anything anymore, and it is the law of the strongest that applies, and peace can no longer be guaranteed on our continent itself." 

He added that the future of Europe will not be set by the Kremlin or Washington, DC, and spoke of extending the French nuclear umbrella to Europe.

This is going to come at a vast cost. If you think a 31bp rise in Bunds captures the scale of shocks involved in a soft-power Europe trying to set its own future in a hard-power world then you spend too much time in soft-power circles. For starters, the FT op-eds today that 'Europe must trim its welfare state to build a warfare state': like it or not, that is starting to sound a bit MEGA (Europe, not America) and DOGE. One wonders what the ECB will say about it today.