Europe’s Rebirth: Herve Van Caloen on Germany’s Military & Tech Shift

In this episode of Lead-Lag Live, I sit down with Hervé Van Caloen, President of Mercator Investment Management, to discuss why Europe’s long-standing political and economic models are breaking down — and why that might be exactly what the continent needs for a revival.

From Germany’s historic decision to become Europe’s largest military power by 2029 to the shift toward a “two-tier” European Union, Van Caloen explains how a new reality of realism is replacing years of complacency.

We also explore the investment opportunities emerging from this shift, looking beyond traditional sectors to uncover hidden opportunities in European defense, semiconductor equipment, and biotech.

In this episode:
• The End of Complacency – Why the invasion of Ukraine shattered the old French-German leadership model.
• Germany’s Military Pivot – How massive defense spending is fueling a revival in German technology and cybersecurity.
• The Two-Tier Europe – Chancellor Merz’s vision for a streamlined, decision-oriented European Union.
• Investment Frontiers – Why defense leaders like Rheinmetall, Thales, and BAE, along with semiconductor giant ASML, are key players.
• Cutting the Red Tape – The urgent need for Europe to return to its 1992 free-market roots and reduce overregulation.

Previous Episode: https://youtu.be/hN2qCZv9irY

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Transcript

The Original Europe ’92 Vision

SPEAKER_00 0:00

We we have to go back to the the original idea of the at the time it was called the Europe 92 Project. And at the time you had very strong political leaders. You had Mitriel on the left, you had Patcher on the right, you had Helmut Kohl somewhere in between. And they came together and decided to create this free flow of people and capital and free flow of goods within the European Union. That was the initial project to basically create a free market and get rid of all the borders and the paras within the European Union. And that was the real project. And that was there was a lot of optimism at the time because that created a lot of business opportunities. What has happened since then, and I've come back to what I said before, is that the bureaucrats in Brussels have hijacked the whole project.

SPEAKER_01 1:12

Now, Europe is facing a moment of real geopolitical pressure as the war in Ukraine continues to reshape the continent security architecture and new tensions in the Middle East are adding another layer of uncertainty for global markets and the energy policy. According to routers, European officials have warned that escalating conflicts could further strain an already fragile geopolitical environment for the region. And again, as that backdrop, there is a growing debate about whether Europe's political and economic model is still capable of responding to the challenges that it faces. To talk about that and the investment landscape today is Herve Van Kaluen, president of Mercator Investment Management. Hervey, it's great to have you here.

SPEAKER_00 1:58

Thank you, Melly. Glad to be here.

SPEAKER_01 2:00

So, Herve, you said that if we want to improve the situation, defining the problem is, of course, half of the solution. When you look at Europe today, economically and politically, what do you define as the core problem?

SPEAKER_00 2:15

Yeah, it really is. I mean, Europe is waking up to the new reality. I think for a long time Europe had kind of uh ignored what was going on in the world and somehow were very complacent. Um, Europe was, you know, the European Union really was run by this understanding that uh France would uh handle the military and geopolitics of the European Union, and Germany handles the um the economy. That whole concept has been shattered with the invasion of Ukraine by Russia. Obviously, Russia and Putin was not deterred by uh the French military. And the German economy over the last five years has been totally stagnant. So now Europe has to kind of rethink its future. And I think with the pressure coming from America, um, there's definitely um a lot of changes going on. I think for the better, as Europe becomes more realistic.

The French–German Model Frays

SPEAKER_01 3:11

Speaking about the pressures from the US, what are you seeing in you know, in terms of, you know, I mean, for decades, the the European project was sort of anchored by French German uh leadership. We saw Trump sitting in the White House the other day with on the German Chancellor and and you know, at the same time making um negative remarks about Spain and France. Do you agree that the model has effectively broken down? And and what do you think happens to that partnership?

Germany Steps Into Leadership

SPEAKER_00 3:41

Yes, and and when something that doesn't work breaks down, that's probably a good thing. And now we have to kind of rebuild, and everything has to be rebuilt the way I see it, has to come from Germany. Germany is the only country that can actually save the whole European uh Union project. Uh and you're seeing that with uh Chancellor Merz uh now deciding to become the largest uh military in Europe by 2029. So Germany has decided to no longer be just a soft uh power, but to become a real military power and to be part of the debate in the geopolitics and investing very heavily into their military, which has a lot of consequence, not just in geopolitics, but the fact that Germany will take the lead now in Europe and in which is a content that's very difficult, or the whole concept of your opinion is very difficult to uh manage because you have 27 members and you know somebody has to make a decision here. And if you don't have a leadership coming from Germany, very little happens. And we've seen that uh in recent past, and you know, where the European Union uh bureaucrats in Brussels or the European Commission or the European Parliament are all trying to get more power. So you have this speck of war between the European bureaucrats and the different countries that really matter. And I think Germany now is determined to kind of change the uh the dynamics that can uh achieve that.

SPEAKER_01 5:11

Do you think for Germany to do that, are they do they need is the US backing important? Is that the most important thing?

Tech-Driven Defense Modernization

SPEAKER_00 5:19

I think Germany realizes that you know UF can no longer um count on the uh American military umbrella forever, and never should have. I mean, at a certain point, they have to be able to defend themselves. So what is happening is that uh Germany is investing, and Germany has the means to invest heavily in the military uh in their defense uh structure. So uh we have a budget that um it's hundreds of billions of dollars to rebuild or to actually build the military because Germany didn't have a real military uh force. And that has a lot of consequences for the technology as well, because you know, you you just you don't just invest in guns and tanks anymore. A military has to be technology advanced. And so you invest in drones and satellites and cybersecurity and missiles, and and that will kind of uh reveal create a revival of the German technology that we're already seeing uh with a lot of investments in these uh technology companies.

SPEAKER_01 6:21

Is there going to be kickback then from the other European countries in the region?

Overregulation And Power Creep

SPEAKER_00 6:26

I think, you know, of course, um, you know, there's gonna be a debate and and you know, we'll see where that is going. Um very interestingly, uh Chancellor Merz has tried to start a new idea of having a two-tier European Union where the the largest, the six largest uh countries uh would move forward and not wait for everybody else to come on board when they make decisions, and then eventually the rest of Europe will follow. So we'll see that two-tier uh Europe will work. But that's that's a that's a starting point. The debate is starting, where Germany is moving forward, trying to create this two-tier economy and two-tier uh political union, and the rest of Europe um will have to follow if they want it to work. I think we are still in that process. Uh, and for this to happen, I think we will have to see uh the European Union uh in Brussels and the bureaucrats in the parliament to kind of give up a little bit of their power or try to stop taking so much power because they're bringing too much regulation. That's one of the key issues in Europe. Europe is over-regulated because you have so many people making decisions. If you have, like in Belgium, seven different parliaments in one little country, well, every parliament wants to make uh decisions. That's what the job is. So you you end up with having uh over-regulated economies. And I think the Europeans have started to realize, I mean, I think they definitely have realized that they have a problem of over-regulation. Now they haven't figured out yet how to reverse that. Um, and that that's where we're at now.

Energy And Immigration Realism

SPEAKER_01 8:08

Yes, speaking about uh regulation, Herbe, you've you've also said Europe needs to become more realistic on stuff of the policy fronts, particularly energy and and also immigration. What changes do you think are necessary there? And and what do you think is the timeline for some of these changes taking place?

Returning To A True Single Market

SPEAKER_00 8:25

Yes, and and look at we're seeing that in Germany, where they have slowed down the immigration and they have slowed down the uh transition to um you know zero carbon policies. Um I think that's realistic. I mean, because the if you look at the electricity, in the cost of electricity in Germany is the highest in the industrial world. It's I think like three times um the cost here in the United States. And that's because they went too fast towards the transition of alternative energies, and which is very expensive compared to what they used to have, like the cheap gas and oil coming from Russia. So Germany is becoming more realistic about their uh transition towards uh carbon neutral economy. Uh also immigration, you know, the the uh immigration was out of control and was costing and too much. One can debate political issue, and you know, one can be pro or against immigration, but one has to realize that there's a cost involved because the immigrants in Europe um get a lot of social benefits and they're very costly. So you cannot let people walk in uh in high in those big numbers and and and just continue to pay for it. Uh eventually uh that has come under control. And and that has happened. We've seen a slowdown of this uh illegal immigration and also legal immigration in in Germany and but all over Europe because there's been a pushback as well from uh you know the borders.

SPEAKER_01 9:56

Yeah, and and so going back to what you uh brought up uh two questions ago, I think you you you know you've also said that the Europe needs to go back to the the formation was in the in the early 1990s and focus more on free markets um and less on, as you said, centralized decision making. What should that look like in actual practice?

Where The Investment Upside Is

SPEAKER_00 10:16

So we we have to go back to the original idea of the at the time it was called the Europe 92 project. And at the time you had very strong political leaders. You had Mitriel on the left, you had Patcher on the right, you had Help Cole somewhere in between. And they came together and decided to create this free flow of uh people and um capital and free flow of goods within the European Union. That was the initial project to basically create a free market and you know get rid of all the borders and uh the tires within the European Union. And that was the real project, and that was there was a lot of optimism at the time because that created a lot of business opportunities. What has happened since then, and I'm come back to what I said before, is that the uh bureaucrats in Brussels have hijacked the whole project. And I think partly because the political leadership in the different countries was so weak, so that the European Union in Brussels, the Commission, you just took much more power and the parliament is trying to get involved. And so it's the whole project of just creating a free market of Europe has been hijacked by bureaucrats who are trying to make it a political union and instead of deregulation that should have come with the free markets uh of the 1992 project, we've had much more regulation. It's the exact opposite that has happened. So again, it's the start-of-war between the uh politicians at the national level and politicians and the bureaucrats because they're not elected at the uh European level.

SPEAKER_01 11:50

Yeah, so and then you know, you have to bring that into the it to talk about investments and and trading, where do you think the environmental and economic shifts that we're discussing are are going to come into play? Where are the opportunities going to be?

Biotech And Semiconductor Strength

SPEAKER_00 12:05

So I I think the opportunities are at this point definitely in the defense sector. I mean, if you look at some companies, the large defense uh companies in Germany like Rhein Metal, in France, like Palace, or in Italy, like Leonardo, or in the UK, the VAE, they've all done very well. And for obvious reasons, you know, their budgets and their sales and their order book have gone through the roof. But you know, also from there, you're gonna see technology um benefiting from this. I mean, in Germany, you have a huge budget to invest in the military, but also in you know, in the technology that is involved, like satellites and rocket uh technology. Um, you know, companies like OHB in uh in Germany, uh, which makes the satellites that um, you know, uh Europe has this uh navigation, global navigation system called Galileo. OHB is a company in Germany uh that built the satellites and is uh servicing the whole system. Company in France like Loomybird, which is a smaller company, but it's a you know a leader in laser technology, which obviously has a lot of applications in uh in the defense sector. So that that's where you see a lot of um potential and a lot of excitement. Uh, of course, there are other companies in other sectors, but I think uh one has to rethink um you know how to invest in Europe uh as a technology um investment because it has been neglected. You know, Europe has not participated in the AI revolution as much, but they can benefit from that. There's a Dutch company called Nabius, which is uh a leading neo-cloud company competing with uh Coralweave here in the United States. So that there are ways to play the technology in Europe, something that people may probably not realize.

SPEAKER_01 14:03

Can you talk a little bit about you know you touched on AI and defense, but what about biotech fashion, even semiconductor equipment? Are there opportunities in in those sectors?

Reigniting Risk-Taking In Europe

SPEAKER_00 14:14

It's very interesting you asked that question because you know there are some very good biotech companies in Europe, in Belgium, especially. They have a lot of uh small, medium, you know, small and medium uh size uh biotech company. If you look at the semiconductor equipment company and the Dutch have really amazing technology, everybody is familiar with ASML, which is the you know monopoly globally in the uh um lithography uh equipment uh for semiconductors. Uh but there are other companies, they're all kind of the ushers of the former fruits company in Holland. So you have ASM International, ESML, you have BESI, and they all have like very specific uh technology and equipment for the semiconductor industry. Uh so there is a very good technology um in countries like the Netherlands, and more and more now uh you see investments in um in startups as well. I mean, that that's part of what uh Europe is missing. Europe has lost its uh desire for risk taking. And um and I think again to come back to Germany, the Chancellor uh Merz is investing not just in those large companies to increase the number of tanks and the number of guns, but uh the the the country, well, the government is actually investing in startups, in uh rocket technology, rocket ship technology, and things like that. So I think what the Europeans are trying to do is to uh re-ignite the desire for risk taking. And that will take some time. But there's there is potential because there's very good technology over there.

How To Follow Hervé And Wrap

SPEAKER_01 15:51

Hervey, you know, it's always so interesting to talk to you and and and listen to your ideas on you know the the global uh economy and and and policies. Where can people go to find out more, to read, to read your work or and to connect with you?

SPEAKER_00 16:06

So we my company is called Mercator in uh investment management. Uh I have a website, and please um maybe you've been published the uh the website here. Uh I'm also on X every day. I'm trying to make some comments uh on X.com. Uh so please um join me there and send me questions. And uh I would love to start a dialogue with whoever is interested in investing in Europe or in Japan or over the world. We we don't invest just in Europe. This is the topic today. Um, but there are a lot, there's a lot going on in Japan as well.

SPEAKER_01 16:41

Exactly. And and I urge people to go back and look at the last podcast we did where you talked more about uh Japan and and even South America. I think we'll put the link uh in the description below. But anyway, thank you again so much for being here, and thanks to everyone for watching. Be sure to like, share, and subscribe for more episodes of Lead Light Live.

SPEAKER_00 16:59

Thank you very much, Melanie.