“On the record? We’re as calm as calm can be,” a European official assured me last week when I called him to ask what he thought about the reelection of Donald Trump.

His answer surprised me. I’d first met the official earlier this year when I was reporting on European allies’ view of the U.S. presidential election. Back then, almost every leader and diplomat I interviewed expressed dread at the prospect of Trump’s return to power; this same official had described the stakes as “existential” for his country. The reasons for the anxiety were obvious: Russia was waging war on NATO’s doorstep, and America, the alliance’s most powerful member by far, appeared to be on the verge of reelecting a president who had, among other things, said he’d encourage Russia to “do whatever the hell they want” to NATO countries he considers freeloaders. Yet now, the official on the other end of the line was talking optimistically about the “transatlantic cooperation” his government looked forward to fostering with its partners in Washington, and “working toward strong relationships with the new administration.”

[Read: What Europe fears]

“We approach the next Trump presidency with calm and focus, not wobbling and panic,” he confidently declared.

Then he asked if he could speak anonymously. I agreed. “Obviously,” he said, “a million things could go wrong.”

Political leaders and diplomats across Europe are clear-eyed about the threat that the next president will pose—and yet they can do very little about it. “The overall level of anxiousness is fairly high,” the official told me. “People are expecting turbulence.” America’s allies now know that they can’t simply ride out a Trump term and wait for a snap back to normalcy. So far this century, Americans have elected George W. Bush, Barack Obama, Donald Trump, Joe Biden, and Trump again. “Predictability is gone,” he said. “The pendulum swings from one extreme to the other.”

In the short term, sources told me, the plan is to cozy up to Trump and those close to him and hope for the best. In the long term, a growing consensus has emerged that Europe will need to prepare for a world in which it no longer counts on America for protection.

Wolfgang Ischinger, a veteran German diplomat who has served as ambassador to the United States, is among those urging calm. He has publicly cautioned European leaders against “finger wagging” in their interactions with the president-elect, and said they should take a wait-and-see approach when it comes to Trump’s foreign policy. Like other Europeans I spoke with, he was relieved by the choice of Marco Rubio—who has signaled support for NATO and has traditional views of America’s role in the world—for secretary of state. Ischinger also welcomed the realism that has shaped Europe’s response so far to Trump’s reelection. “We’re just going to have to deal with him—we’re prepared to deal with him.”

European officials, who have spent years planning for this contingency, are working to deepen personal relationships with Trump’s Republican allies, Ischinger told me, and talking about gestures they could make to flatter him. But these efforts will almost certainly face resistance from the European public, which, he said, broadly finds Trump repellent and even sinister. “I see a lot of disdain and panic,” he told me.

These reactions were reflected in the postelection headlines in the European press, which greeted Trump’s return with a mix of bafflement, scorn, and Apprentice puns. “What Have They Done … Again?” asked the cover of Britain’s Daily Mirror. The Guardian plastered its cover with the words “American dread.” And an op-ed on the homepage of the German newspaper Die Zeit resorted to English to capture the moment with a four-letter headline: “Fuck.”

Behind the scenes, Ischinger told me, European leaders have discussed inviting Trump to a capital for a grand state visit where allies could roll out the red carpet and hopefully cultivate some good will. But Ischinger worries that such an attempt could backfire. “I cannot imagine any such scenario in any German-French-Spanish-Italian city where you would not have huge anti-Trump demonstrations, probably really ugly ones,” he told me. “Organizing a decent visit for Mr. Trump would really be quite a nightmare for the police.”

Ischinger told me that the return of Trump and his hard-edged “America First” policy is emboldening Europeans who have been arguing that the continent needs more independence from its most powerful ally. Ischinger himself seems to be listening. When we spoke earlier this year, he was somewhat dismissive of the idea that Europe could chart a post-America course, at least in the near term. “Dreaming about strategic autonomy for Europe is a wonderful vision for maybe the next 50 years,” he told me in March. “But right now, we need America more than ever.”

Last week, though, he spoke urgently of the need for Europe to start manufacturing more of its own weapons and get serious about being able to defend its borders. “Are we finally going to wake up to the fact that we cannot rely forever on being protected by the United States?” he asked. He said he doesn’t believe that Trump will move to withdraw from NATO, but the fact that it’s even a question puts Europe in a deeply precarious position. The U.S. has more troops stationed in Europe (about 85,000) than the entire militaries of Belgium, Sweden, and Portugal combined. It provides essential air-force, intelligence-gathering, and ballistic-missile defense capabilities; covers about 16 percent of NATO’s operating costs; and manufactures most of the weapons that are bought by European militaries. Ischinger said that the situation is untenable: It’s just too risky to rely indefinitely on American military might to deter Russian aggression in the region. “We have a war now. This is urgent—this is not just political theory,” he told me. “This is a decisive moment in European history.”

Meanwhile, some in Europe are looking beyond the immediate military implications of Trump’s election. At Faith Angle Europe, an annual conference hosted last week by the Aspen Institute in France, journalists and scholars from both sides of the Atlantic gathered in a resort on the French Riviera and, in between pastry buffets and dips in the pool, contemplated the potential end of liberal democracy in America. To many in Europe, Trump’s election looks less like a historical fluke or “black swan event” and more like the climactic achievement of a right-wing populism that has been upending politics on their continent for much of this century—the same forces that led to Brexit in the United Kingdom, brought Giorgia Meloni to power in Italy, and made Marine Le Pen a major player in France. Not all Europeans, of course, are put off by the brand of politics that Trump represents

Nathalie Tocci, an Italian political scientist who has worked as an adviser for the ministry of foreign affairs and the European Union, predicted that Trump’s victory would “galvanize” far-right movements around the world. “They feel they really are on a roll, and they probably are,” she told attendees at the conference. “There’s a sense of legitimization … If this is happening in the heart of liberal democracy, surely you can’t make the argument that this happening in Europe is undemocratic.”

In recent years, Tocci said, far-right leaders in Europe were on their best behavior, eager not to alienate America by, say, airing their real views about Putin and Ukraine. Now that Biden, a classic transatlanticist, is set to be replaced with Trump, she said, “there’s going to be quite a lot of lowering of the masks.”

Bruno Maçães, a writer and consultant on geopolitics who has served as Portugal’s Europe minister, told me his phone had been ringing constantly since Trump’s election. European business leaders want to know what Trump will do with his second term, and how they can prepare. Maçães was not optimistic. He scoffed at Trump’s decision to create new, lofty-sounding administration posts for Elon Musk and Vivek Ramaswamy, and was baffled by the Silicon Valley types who believe the billionaires will transform the federal government, usher in a new era of unprecedented economic growth, and colonize Mars. “Maybe,” Maçães said. “I don’t know. But if you saw this in another country, you would see it as an acute sign of political decay when billionaires and oligarchy are taking over political policy.”

Maçães, like others I talked with, was eager not to be seen as hysterical or fatalistic. He said he didn’t think Trump’s foreign-policy appointments so far have been disastrous. But when he looked at the people Trump was naming to key domestic positions, most notably Matt Gaetz as attorney general, he found it hard to see anything other than a profound deterioration of political culture and democratic norms. “Americans have more reason to worry than the rest of the world,” he said.

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Last month, the 2024 Nobel Prize in economics was awarded to three scholars, Daron Acemoglu, Simon Johnson, and James Robinson, for “studies of how institutions are formed and affect prosperity.” Don’t let the dry language fool you: The award generated more controversy than any other in recent memory. One critic wrote that “it exposes how the economics discipline fails to ask critical questions.” Another called the trio’s work “historically inaccurate, if not ideologized.” I confess to emailing a long rant to colleagues in my department.

Why so much drama? In the work that won the Nobel, Acemoglu, Johnson, and Robinson—three highly respected economists almost universally referred to as “AJR” by their peers—argue that nations with democratic institutions have the most economic growth. It’s an appealing thesis that reaffirms the political systems of Western democracies. The problem—not just for the theory, but for the resilience of those political systems—is that it simply isn’t true.

According to AJR, certain kinds of economic institutions—private property, freedom of contract, a strong and impartial legal system, the freedom to form new businesses—are “inclusive,” meaning they allow most people to freely participate in the economy in a way that makes the best use of their skills. These institutions create modern, wealthy economies that are driven forward by technological innovation, not merely propped up by having won the natural-resources lottery.

Economic institutions do not just drop out of the sky. The laws and systems that make an economy run, such as market regulations, must be created and maintained by governments. AJR therefore argue that political institutions dictate economic outcomes. A nation’s political institutions are what determine who can rule, how these rulers are chosen, and how power is distributed across government. The institutions are enshrined in constitutions, electoral rules, and even traditions. In a dictatorship or monarchy, political power is narrowly distributed and relatively unconstrained. In such cases, AJR argue, a small ruling class will tend to use its power to restrict competition and extract wealth for itself. By contrast, if political power is widely distributed across diverse groups in a society, then their common interest in doing business, and competition among them, will result in prosperity-generating economic institutions.

In the United States, for instance, the oil industry would prefer not to have to compete with alternative energy. Old-stock citizens don’t want to compete with recent immigrants. But if the government is given the power to exclude my rivals, that same power could potentially be used against me. So, according to AJR’s thesis, our common desire to maximize our individual liberties and protect our property prevents us from ceding such power to the government. We’d rather keep the competition than risk getting shut out of the game. And that competition forces us to be ever more efficient.

In the end, AJR claim, decentralized democratic systems such as those found in the U.S., Germany, and Switzerland foster economic prosperity by improving a nation’s ability to innovate. Democracies with more centralized power are less productive. (Think of countries such as France, Portugal, and Greece, which have less separation of powers, fewer checks and balances, and relatively weak state and local governments.) Finally, one-party states and authoritarian regimes—those with even more centralized and less competitive political systems—breed stagnation.

[Gisela Salim-Peyer: Why does anyone care about the Nobel Prize?]

The most common critique of the AJR thesis hinges on methodological objections to the way in which they collected and analyzed the data. But you do not need a degree in economics or statistics to be skeptical of their argument. The real world simply provides too many counterexamples.

On the one hand, there are the nondemocratic systems whose economies have done quite well. To take the most obvious, China’s economy has grown fantastically since the late 1970s even as its political system has remained autocratic and repressive. It is now a global competitor or leader in electric vehicles, solar panels, quantum computing, biotechnology, mobile payment systems, artificial intelligence, 5G cellular, and nuclear-fusion research. South Korea and Taiwan are democracies now, but each grew from an agricultural backwater into a technological powerhouse from the ’60s to the ’90s, while they were relatively authoritarian states. The same goes for Japan. After World War II, Japan’s wealth grew dramatically as the country became a world leader in technology and manufacturing. At the time, it was a one-party state, with heavy government intervention in the economy. Elections were held regularly, but only the Liberal Democratic Party won. The party therefore controlled almost every major political institution throughout the country for nearly four decades, resulting in infamous, widespread corruption. Still, the economy flourished.

On the other hand, examples abound of decentralized democracies that don’t experience the kind of knowledge- and technology-driven growth that AJR celebrate. Canada is a relatively wealthy nation, but over the past several decades, without any change to its institutions, it has fallen into a prolonged productivity slump. AJR consider Australia, another decentralized democracy, to be an example of their theory in action, but its wealth comes overwhelmingly from natural resources; it is not particularly good at cutting-edge science and technology. Nor has decentralized democracy propelled Argentina, Brazil, Mexico, and India into the economic stratosphere. Great Britain was the world’s wealthiest and most technologically advanced high-tech superpower during the 18th and 19th centuries, but it lost that position even as its political institutions became more democratic and distributed.

A particularly revealing example is Spain. Spain has been institutionally transformed since 1975. It went from 40 years of military dictatorship to a market-oriented, decentralized democracy. Despite this revolution, there has been little relative change in Spain’s national innovation rate. Its economic growth per capita has averaged less than 1.5 percent per year since the dictatorship ended. That’s far worse than Ireland (a unitary democracy), Singapore (a “partly free” one-party democracy, according to Freedom House), and Vietnam (a communist dictatorship), each of which leveled up its economic competitiveness during the same time period.

AJR have responded to these critiques, often in point-by-point fashion. They have argued, for example, that China’s growth will be unsustainable in the long term if its political institutions don’t change. India, meanwhile, might be a decentralized democracy, but it is “highly patrimonial,” which “militates against the provision of public goods.” Arguments such as these are unfalsifiable: One can always explain away seemingly inconsistent results by pointing to some overlooked characteristic of a given country. And if a culture of patrimony has defeated otherwise-healthy institutions in India, then maybe institutions aren’t so fundamental after all.

If political institutions don’t explain economic outcomes, what does? My colleagues who study innovation and economic growth point to many possible answers, including culture, ideology, individual leadership, and geography. In my own research, I have found that countries with technology-driven, high-growth economies share one thing in common: a powerful sense of external threat. Some fear invasion; others worry about being cut off from a vital economic input, such as energy, food, and investment capital. Taiwan’s very existence is threatened by China, as was Israel’s after the Arab states began to unite around it. These two countries needed to build high-tech defense industries at home and earn money to purchase advanced weapons systems produced abroad.

Stagnant economies, by contrast, tend to be more focused on internal divisions. They are less concerned about military attacks or imports of essential goods and suffer more from deep conflicts over class, race, geography, or religion. If a nation’s internal threats are perceived to outweigh its external threats, then its people will fear the costs, risks, and redistribution of building a competitive economy. The pie is safe, so they fight over the relative size of their slice. (If I’m right, then Donald Trump’s focus on persecuting “the enemy from within” bodes ill for America’s economic prospects should he be reelected this week.) But if a nation’s sense of external threat is greater than its sense of internal threat, then it tends to invest in innovation. The costs and risks are worth it. The pie is in danger, so people cooperate to defend it.The question of why some countries thrive and others stagnate isn’t just an academic one. In the late 1980s and early ’90s, under pressure from the West, Russia created a parliament and privatized state assets; the West declared victory. The U.S. invaded Iraq in 2003, set up a parliament and a stock market, and then announced “Mission accomplished.” The promised economic miracles never materialized.

[Brian Klaas: The dictator myth that refuses to die]

Western democracies too often assume that setting up the right institutions will bring about the desired outcomes. It doesn’t. A society uses institutions to accomplish its goals. But the goals come first, and they are determined by fights over wealth, power, resources, ideas, identities, culture, history, race, religion, and status.

How did such a demonstrably incorrect thesis win the Nobel Prize? In part, I suspect, because it tells the story that many educated Westerners want to hear about democracy. We want to live in a world where democracy cures all. But if democratic nations overpromise what democracy can achieve, they risk delegitimizing it. In Russia, China, and much of the Middle East, democracy is widely seen as dysfunctional, partly because it has not delivered the promised economic prosperity.

Ambitious politicians recognize that institutions are tools, not causal forces. In different hands, the same tools will achieve different ends. Men such as Hitler and Mussolini understood this. They exploited fundamental political divides to undermine both democracy and markets. These lessons are not lost on modern leaders such as Xi Jinping, Vladimir Putin, Recep Tayyip Erdoğan, Viktor Orbán, Narendra Modi, and even some here in the United States. We therefore ignore the more fundamental political forces at our peril. So do Nobel Prize winners.

Amorim has signed a contract at the famous English club until June 2027, starting in his new role on November 11.