The Davos Truce, Rome's New Axis, AI's Bubble Warning, Taiwan's Perfect Storm, Berlin's Winter Metamorphosis

IN WEEK 05, 2025
Quiz

Which economist noted that the effective U.S. tariff rate reached a peak of 22% on ‚Liberation Day‘?

D. Nora Szentivanyi

Welcome

Dear Readers,

Welcome to the Diplomacy Berlin Newsletter.

As we transition into the final days of January, the geopolitical center of gravity has shifted from the snowy peaks of Switzerland back to the historic corridors of Rome and Berlin. This week, we reflect on a „Spirit of Dialogue“ that has proven to be both a stabilizing force and a harbinger of a more transactional global order. The conclusion of the 2026 World Economic Forum in Davos brought with it a sigh of relief as the „Greenland Gambit“ – and the immediate threat of transatlantic tariffs – was officially averted through a new Arctic security framework. Yet, as the „Davos Truce“ takes hold, it leaves behind a clear lesson: the old multilateral consensus is being replaced by flexible, issue-based coalitions led by middle powers determined to secure their own strategic autonomy.

In this issue, we examine how this new „minilateralism“ is taking root closer to home. The Rome summit between Prime Minister Giorgia Meloni and Chancellor Friedrich Merz has formalized a powerful new industrial axis, positioning Italy and Germany as the primary agenda-setters for European competitiveness and defense. From the „mother of all deals“ with India to the high-stakes race for semiconductor sovereignty in Hokkaido, the theme of 2026 is becoming clear: resilience through targeted partnerships. However, as we celebrate these diplomatic breakthroughs, we must also „live the questions“ posed by the rapid acceleration of AI and the shifting tides in the Taiwan Strait, where a perfect storm of political cycles demands our constant vigilance.

With best regards,

Sigrid Arteaga

In The Hood

The Death of Diplomacy by Design: Is Europe Trapped in a Permanent Emergency?

Christian is Professor of Political Science and International Organizations at Friedrich Schiller University Jena and co-director of the MA International Organizations and Crisis Management. He is also a Research Fellow at the Global Governance Center of the Geneva Graduate Institute. His main research interests are related to the governance of transboundary crises, regime complexity, and contestations of international order.

Europe seems trapped between crisis management and long-term vision. From your work on emergency politics: is the EU drifting toward a model of “permanent exceptionalism,” and what does that mean for democratic legitimacy?

Indeed, I think there is a tendency in this direction. Exceptionalism or emergency politics, that is, the adoption of drastic measures breaking with established norms based on justifications of urgency and necessity, may not yet have become the constant mode of politics in the EU. Yet, it seems that deeper institutional or policy reform, be it through more or less integration, nowadays hardly comes about in modes other than emergency. The EU has reached a point of institutional gridlock where competing member state interests and public contestation disallow smooth, technocratic reform processes. Europe’s political leaders – national and supranational – resort to security and emergency rhetoric to muster support for what they deem necessary adjustments in face of internal as well as external “threats.”

The EU is increasingly shaped by informal practices and legal derogations accepted in the shadow of “crisis”, from the (self-)empowerment of the ECB and unilateral border closures to fend off migration to NextGenEU and its ad hoc RRF. Currently, the greatest push goes towards defense integration to attain greater geopolitical power, justified by the Russia’s invasion of Ukraine. Each of these measures can be debated for its political merit. From a democratic legitimacy perspective, however, such “permanent exceptionalism” is only likely to further undermine the already fragile legitimacy enjoyed by European institutions and – increasingly – national governments. Repeatedly overcoming political and public resistance through appeals to necessity is bound to increase that resistance long-term.

Germany’s shift from Wandel durch Handel to “de-risking” marks a profound intellectual reversal. Do you think Berlin has fully grasped the governance consequences of treating China as a systemic competitor rather than a reformable partner?

I think Germany is undergoing a period of even more fundamental uncertainty than “only” connected to China. The United States, for most of post-War German history a key ally, economic partner, and shepherd in global politics, has turned into an extremely powerful bully that seeks to undermine European unity and support the right-wing political fringes. If we talk “systemic competitors,” then we need to talk about both China and the US. With regard to neither of them, I think, has Berlin fully grasped the consequences yet. While most policy-makers certainly do no longer cater to any naïve dream of democratizing and ‘liberalizing’ China, there still remains a relatively clear strategic lacuna in how to approach an economically expanding great power who is using its state-led capitalism to sideline competition and stabilize autocracies. This is even more true with regard to the US where a strategic rethink is yet to happen. Germany – and the EU for that matter – have to realize that their foreign trade and foreign policy models are phasing out.

EU–Africa relations are being reframed as a partnership of equals — at least rhetorically. From a global governance perspective, what would it take for the EU to overcome entrenched asymmetries and build a genuinely co-authored agenda with African states?

This is a big question. Honestly, I don’t think the EU can (or even wants to) engage with “Africa” on equal footing as long as deeply engrained colonial imaginaries and racialized narratives continue to dominate in European capitals. Still, the idea is that a strong and wealthy continent needs to assist a weak and poor continent, without recognition of the historical and structural patterns of exploitation that produced and continue to reproduce these inequalities.

I am not sure that the Chinese way is the more desirable, either. China leverages the idea of “South-South” cooperation with Africa to signal a shared fate and historical commonality in colonialism. While clearly more successful than Europe and the US on the African continent, China’s approach is equally hypocritical as it is essentially also geared towards extraction.

John Mearsheimer’s appearance at the European Parliament in late November sparked strong reactions. What does the popularity of such pessimistic great-power narratives reveal about Europe’s strategic anxieties — and do they obscure more constructive ways of thinking about global order?

Mearsheimer is a populist among international relations scholars. He caters to fear and basic instinct and makes it all sound so simple. That’s dangerous, especially from a so-called expert.

There is no denying that the architecture of international order is transforming fast and that “great powers” or “spheres of influence” are back on the table. My colleague, Stacie Goddard, pointedly argued in a recent Foreign Affairs piece that Trump, Putin, and Xi are united by a vision akin to a globalized version of the 19th century Concert of Europe: mutual respect among the great powers, unfettered discretion in their respective “backyards.” This is a reality that the EU and other backyards have to reckon with.

The problem with Mearsheimer’s arguments is not only that they are overly simplistic, but also that he casts power politics among states as inevitable constants in human existence. That is, he lends justification and credence to offensive practices in international politics appealing to law-like axioms of a highly reductionist and flawed theory according to which states have but one option to survive: maximizing power.

Instead of showing how things could be different, and how a better global order could look like, this approach suggests: change is impossible. Yet, the fact that global order is transforming is in itself proof, that other worlds are indeed possible, that people have agency, choose certain paths over others, in ways that are not always linear. This possibility to influence the fate of global order is not necessarily productive, as Trump is showing day-by-day. But at least it shows that the abyss is not inevitable.

6. Looking across Berlin’s international scene, what is one blind spot you see in Europe’s current debate on global governance — the issue we are simply not taking seriously enough?

A major blind spot in Berlin’s current debate on global governance is how fundamentally the ground beneath multilateralism is shifting — and what is quietly replacing it. We often talk about a “crisis of multilateralism,” but we still tend to assume that weakened international organizations can somehow be repaired or stabilized. In reality, we are witnessing a more profound transformation: sustained funding cuts, political contestation, and strategic disengagement –  from UN reform debates to U.S. exits and threats of exit – are hollowing out public multilateral authority faster than many acknowledge.

What is filling this gap is not a return to state-centric governance, but an accelerating move toward multistakeholder and hybrid arrangements that bring private actors into the core of global governance. This trend is frequently framed as pragmatic and inevitable. Yet the deeper problem is that if hybrid governance becomes the default – rather than a complement – we risk losing the capacity to define and protect the public good at the global level.

Hybrid constellations tend to privilege speed, scalability, and investment logics, but they systematically weaken accountability, regulatory ambition, and distributive justice. The blind spot, then, is not hybridity per se, but the absence of a serious debate about what happens when it becomes the only form of global governance left.

Measure

Italy and Germany Double Down: A New Strategic Axis for Europe

The intergovernmental summit in Rome on January 23, 2026, marked a definitive shift in European power geometry, as Prime Minister Giorgia Meloni and Chancellor Friedrich Merz signed an expansive „Action Plan“ to institutionalize cooperation between the EU’s two largest manufacturing powers. Beyond the symbolic, the leaders formalized a Security, Defense, and Resilience Agreement that explicitly links political coordination to industrial output—consolidating partnerships like the Leonardo-Rheinmetall land systems alliance. By submitting a joint „non-paper“ to the European Commission ahead of the February 12 Leaders’ Retreat, Rome and Berlin have effectively seized the initiative on EU competitiveness, advocating for an „Omnibus“ permitting initiative and a „clean sweep“ of so-called „zombie“ regulations. This partnership represents more than bilateralism; it is a pragmatic „pro-industry“ front designed to anchor the Single Market against intensifying pressure from the United States and China.

Although this axis offers a revitalized „motor“ at a time when the traditional Franco-German engine is stalled by domestic instability in Paris, this rapprochement is not without its risks. Critically, the partnership is grounded in a shared skepticism toward the EU’s regulatory „overreach,“ particularly elements of the Green Deal that both leaders argue have hollowed out the automotive sector. This „realist“ turn toward deregulation and national industrial interests may streamline growth for manufacturing heavyweights, but it risks alienating member states committed to ambitious climate timelines or those who fear a return to a „Directorate“ of large powers. Furthermore, the reliance on a personal rapport between the center-right Merz and the conservative Meloni suggests a vulnerability: if this axis is perceived as an ideological alternative to Brussels rather than a supplement, it could deepen the very fragmentation it seeks to solve, trading universal EU standards for a minilateralism of the powerful.

Read the full report on the Decode39 website.

Read

The Trade War of 2026: From Structural Shifts to Greenland Gambit

The global trade landscape in late January 2026 has been defined by a high-stakes „Greenland Gambit,“ though the immediate threat of a transatlantic trade war has significantly receded. According to J.P. Morgan Global Research, the volatility was sparked by the Trump administration’s threat to move beyond standard sectoral duties toward a 10% reciprocal tariff on eight European nations – including Germany, France, and the U.K. – unless Denmark agreed to a „complete and total purchase“ of Greenland. This move, which targeted countries involved in the „Arctic Endurance“ military exercises, initially sent European markets into a tailspin. However, the situation reached a sudden turning point at the World Economic Forum in Davos on January 21, 2026. Following a high-pressure meeting with NATO Secretary-General Mark Rutte, President Trump announced that a „framework of a future deal“ for the Arctic region had been established. Consequently, the 10% tariffs scheduled for February 1 have been officially averted for now, and the President has ruled out the use of military force to acquire the territory.

Despite this de-escalation, the global economy remains in a state of „fragile resilience“ as structural risks persist. While the immediate 10% levy is off the table, the broader U.S. tariff regime – currently averaging an effective rate of approximately 15.8% – still faces significant legal hurdles. The U.S. Supreme Court continues to deliberate on the legality of using the International Emergency Economic Powers Act (IEEPA) for trade duties, a ruling that could force the administration to refund billions to importers. J.P. Morgan economists note that while the „Davos truce“ has provided short-term relief, particularly for the automotive and tech sectors, the administration remains prepared to pivot toward alternative legal pathways like Section 122 to maintain a 15% blanket rate if the courts intervene. This „buy the dip“ sentiment in the markets is tempered by the reality that long-term industrial planning is becoming increasingly difficult as trade policy shifts from economic data to geopolitical bargaining.

This era of „transactional minilateralism“ represents a fundamental departure from the post-war free trade consensus, signaling a move where territorial and security demands are explicitly linked to market access. While the aversion of the Greenland tariffs prevents a „hard decoupling“ in the immediate term, the incident has left a lasting scar on the transatlantic alliance. Critical reflection suggests that the „Taco Trade“—the market’s tendency to rally when the administration backs down from aggressive threats – may be masking a deeper erosion of international norms. For Berlin, the lesson of January 2026 is that the rules-based order is no longer a given; it is a variable subject to rapid „kerfuffles“ and social media diplomacy. The challenge for 2026 will be navigating a world where trade loyalty is treated as a negotiable commodity, requiring European partners to build greater strategic autonomy even as they celebrate the current pause in escalation.

Explore the latest updates and analysis of President Trump’s tariff proposals at J.P. Morgan Global Research.

Listen

Can an island of flowers become a global chip hub?

In the latest Business Daily podcast episode, „Can an island of flowers become a global chip hub?“, the BBC explores Japan’s ambitious, multibillion-dollar gamble to transform Hokkaido from an agricultural powerhouse into a premier global semiconductor hub. Central to this transformation is Rapidus, a state-backed startup aiming to mass-produce cutting-edge 2-nanometer chips by 2027 to revive Japan’s tech power and secure its national supply chains. Rapidus CEO Atsuyoshi Koike highlights the company’s „all-single-wafer“ processing and AI-driven design tools (Raads) as key differentiators that could reduce design cycles by up to 50%. With over $12 billion in initial government investment and a growing local „Hokkaido Valley“ ecosystem attracting global giants like ASML and Tokyo Electron, the project seeks to reclaim the dominant market position Japan held four decades ago. While the technical hurdles are steep, the initiative is framed as a strategic necessity for both national security and the burgeoning global artificial intelligence race.

Listen the Business Daily podcast on the BBC website or via Apple Podcasts.

Watch

Google DeepMind chief warns AI investment looks ‘bubble-like’

In a recent interview with the Financial Times, Google DeepMind CEO Demis Hassabis highlighted the rapid trajectory of Google’s AI models, noting that Gemini 3 is currently topping industry leaderboards and serving over 650 million monthly users. While acknowledging the „ferocious“ competition from rivals like Anthropic, Hassabis expressed significant optimism regarding multimodal capabilities and the potential for AI-powered smart glasses to become the industry’s next „killer app“. However, he issued a cautionary note regarding the current investment landscape, describing multi-billion dollar seed rounds for startups without established products as „bubble-like“ and potentially unsustainable, even as he maintained that AI remains the most transformative technology ever invented.

Critically, Hassabis’s reflection on the „talent war“ – where some researchers are reportedly offered $100 million packages—reveals a deepening divide between commercial hype and scientific mission. While he argues that top-tier talent is driven by „unequivocal goods“ like AI for medicine and science, the sheer scale of capital infusion into the sector suggests that the „engine room“ of AI development is increasingly tethered to speculative financial cycles. Furthermore, his estimation that Western companies lead Chinese rivals by only „a matter of months“ underscores a precarious geopolitical race where the pursuit of Artificial General Intelligence (AGI) by 2030 may prioritize speed over the very safety guardrails and „responsible deployment“ he advocates for.

Watch the full interview on the Financial Times YouTube channel.

Highlighted
Learn

Strategic Pivots: The Davos Truce and the Race for 2-Nanometer Sovereignty

The 2026 World Economic Forum Annual Meeting, themed „A Spirit of Dialogue,“ signaled a decisive pivot from universal multilateralism toward a more fragmented „transactional minilateralism“. The week was punctuated by President Donald Trump’s special address, which initially rattled markets with threats of force regarding Greenland before shifting to a „framework deal“ that enhanced Arctic security while averting immediate tariff escalations. This „Davos Truce“ underscored a broader geostrategic trend where middle powers, led by Canadian Prime Minister Mark Carney and European Commission President Ursula von der Leyen, reasserted their roles by building „coalitions that work“ on a per-issue basis rather than relying on the old global order. The emergence of an EU-India free trade agreement – dubbed the „mother of all deals“ – further illustrates Europe’s pursuit of strategic autonomy as it seeks to insulate its internal security and economy from the deepening rupture in the traditional US-Europe alliance.

Beneath the diplomatic breakthroughs, the meeting served as a somber reckoning for a global economy increasingly defined by exogenous shocks and geoeconomic polarization. The IMF and WTO warned that there is „no going back“ to the previous steady state, pointing to a reality where 40% of global jobs – and 60% in advanced economies – are set to be transformed or eliminated by AI within the next two years. While tech leaders like Jensen Huang and Satya Nadella pitched AI as a „democratizing“ infrastructure, the Forum’s Global Risks Report 2026 prioritized societal polarization and geoeconomic fragmentation over even climate change as the most pressing short-term threats. Ultimately, Davos 2026 revealed a world grappling with „cognitive atrophy“ and the potential „catastrophic“ impact of attention-hacking tech, demanding a transition toward human-centric productivity that respects planetary boundaries while navigating the „once-in-a-century“ breakdown of established trust.

Read the full report on the World Economic Forum’s Website.

Know

A Perfect Storm: Taiwan at the Crossroads in 2026

Tthe geopolitical stability of the Taiwan Strait is facing a „perfect storm“ in 2026, driven by a convergence of shifting U.S. priorities and domestic political cycles in both Beijing and Taipei. While many observers previously questioned the „Davidson Window“ – a prediction that China would attempt to control Taiwan by 2027 – Beijing’s calculus has been fundamentally altered by the perception of U.S. President Donald Trump’s non-interventionist stance. The recently released U.S. National Security Strategy, which prioritizes the Western Hemisphere and avoids designating China as a direct threat, has convinced Chinese leadership that Washington’s appetite for military intervention is at a historic low. This window of opportunity is further widened by the ongoing war in Ukraine, which continues to divert U.S. resources and attention away from the Pacific.

Beijing’s Calculation: Strategic Opportunity vs. Xi’s Legacy Internally, the pressure for „reunification“ is increasingly tied to Chinese leader Xi Jinping’s tenacious pursuit of a historical legacy as he approaches the end of his third term in 2027. Despite large-scale military purges that have raised questions about the People’s Liberation Army’s (PLA) readiness for a complex amphibious assault, Beijing believes that if U.S. intervention is off the table, the PLA can easily outmatch Taiwan’s forces. Simultaneously, a decline in the popularity of Taiwanese President Lai Ching-te and recent trade tensions between Washington and Taipei – including 20% tariffs and a mandatory $250 billion investment in U.S. chip production—have fueled Beijing’s hope that the Taiwanese public may be distancing itself from pro-independence parties. While no imminent mobilization is yet visible, the combination of a distracted West and a conservative CCP leadership nearing a critical succession year suggests that any perceived provocation could trigger a decisive campaign sooner than once imagined.

Read the full analysis on the Foreign Affairs website.

Follow

The Institute for Peace Research and Security Policy at the University of Hamburg (IFSH) Berlin Office serves as a strategic bridge between academic research and federal policy-making. In 2026, the office is specifically focused on the International Cybersecurity (ICS) research project, funded by the Federal Foreign Office to provide expertise on the regulation of cyberspace and the political impact of new digital trends. Through high-level formats like parliamentary briefings and public panel discussions, the Berlin team translates complex security challenges, ranging from autonomous weapons systems to crisis resilience in Europe – directly into actionable recommendations for German political decision-makers.

Attend

Metamorphosis – Dialogues about Change:

The Fashion Council Germany, in partnership with eBay, introduces „METAMORPHOSIS – dialogues about change,“ a premier talk series hosted during Berlin Fashion Week AW26. From January 30 to February 2, 2026, international experts in fashion and the circular economy will gather daily from 1:00 pm to 5:00 pm to engage in discussions regarding the essential transformations needed in the industry. Hosted at the Embassade Event Space in Berlin-Mitte, the series features curated dialogues that explore various facets of the modern fashion landscape, aiming to turn conceptual ideas of sustainability into actionable industry shifts. Registration is currently open for those wishing to participate in these critical conversations about the future of responsible commerce and design. Read more and register on fashioncouncilgermany.org.

Future-Proofing EU Enlargement

The German Council on Foreign Relations (DGAP) will host a panel discussion titled „Future-Proofing EU Enlargement Against Foreign Malign Influence“ on January 29, 2026, from 6:30 pm to 8:00 pm in Berlin. The event examines the impact of foreign interference—including disinformation and the weaponization of economic dependencies—across the Western Balkans, Ukraine, Georgia, and Moldova. Featuring speakers from the Federal Foreign Office and the University of Graz, the discussion will assess how the EU enlargement process can strengthen resilience against hybrid threats from actors such as Russia, China, and Türkiye. Read more and register on dgap.org.

Eat and Drink

Located in the heart of Berlin – just opposite the Mall of Berlin and a five-minute walk from the Brandenburg Gate – TAMIA Berlin offers an authentic escape into the flavors of Vietnam. The restaurant strikes a balance between modern urban dining and traditional hospitality, making it an ideal spot for anything from a quick business lunch to a romantic dinner. Its menu emphasizes fresh ingredients and a welcoming atmosphere, reflecting a „well-sorted biscuit tin“ philosophy of variety and care. For those navigating a busy week of summits and festivals, TAMIA provides a reliable, high-quality reset point in the Mitte district.

Buy

As the mercury drops across the German capital, the vulnerability of our four-legged companions – particularly senior dogs or those with minimal undercoats – becomes a primary concern for Berlin’s pet owners. Cloud7’s winter collection, featuring the sustainably insulated Alaska PRO and the fleece-lined Brooklyn, is engineered specifically for these freezing conditions to protect vital organs and aging joints. The Alaska PRO utilizes innovative „Eco Puffer“ filling made from recycled plastic and a fully waterproof exterior, while the Brooklyn offers water-repellent Italian wool for a more classic aesthetic. With specialized cuts for unique breeds like Dachshunds and French Bulldogs, and sizes ranging from Chihuahuas to Great Danes, these designs incorporate two-way zippers for harness access and „effortless wear“ Velcro systems, ensuring that city dogs remain as warm and mobile as their owners during the harshest January stretches. Shop the full winter collection at CLOUD7.de

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