Commentary by Federico Steinberg, Emily Benson, and Nicholas Fenton

Published January 22, 2026

The global economy started 2026 growing at a healthy pace, with stock markets at historic highs, and the paradox that the enormous level of geopolitical uncertainty does not seem to be affecting either growth or investor appetite. The global economy is therefore proving much more resilient to geopolitical shocks than could have been expected just a few years ago. But the question is, how long can this momentum continue?

At the moment, one of the points of tension is Greenland, which remains the target of annexation by the United States. In fact, after President Trump repeated that he would like to "own" Greenland, the U.S. stock market and the U.S. dollar fell, gold prices-considered as the ultimate "safe haven"-increased, and the cost of servicing U.S. debt went up. For now, U.S. President Donald Trump appears to be walking back his threats of kinetic action against Greenland, along with associated U.S. tariffs against the territory's defenders, but given the administration's frequent policy pivots, Copenhagen and Nuuk will likely remain on alert.

If the Trump team does put force back on the table, there is a high likelihood that international markets would react.

Investors and businesses should be concerned about any hostile takeover of Greenland, not because of the territory's economic weight per se, but because such a move would signal a profound disruption of the strategic assumptions that underpin the transatlantic economic and political order. The dispute over Greenland lies at the intersection of NATO credibility, Arctic governance, and critical infrastructure in the North Atlantic. A challenge to the territorial status quo there would immediately raise questions about alliance cohesion, escalation dynamics, and the reliability of existing security arrangements. Markets could (and seem to have already started to) interpret this not as an isolated incident, but as evidence of a broader erosion of geopolitical constraints that have long supported economic stability among advanced economies.

In this context, the European Union, and its retaliation against the United States or even its preventive action (aimed at modifying U.S. incentives and cost-benefit analysis) could emerge as a central economic actor, even if it remained a secondary military one. In a speech at Davos on January 20, European Commission President Ursula von der Leyen unveiled a series of changes to streamline scaling for start-ups and to spur a more dynamic investment environment. In her concluding statement on Greenland, she noted, "our response will be unflinching, united and proportional. But beyond this, we have to be strategic about how we approach this issue." This tension-having to ready a retaliation tool kit while minimizing risk to the European economy-is top of mind for policymakers considering how to respond to U.S. threats over Greenland.

As geoeconomic analyst Tobias Gehrke argued in the context of possible actions that the European Union could have taken to confront U.S. tariffs, the European Commission has a variety of geoeconomic instruments that could be triggered-some for the first time-against its transatlantic ally. The EU goal, which could never rival the U.S. militarily, would be to increase the perceived U.S. cost of the invasion, hoping that more serious economic damage would deter President Trump from taking military action against its NATO ally.

The European Union could use its Anti-Coercion Instrument (ACI), a geoeconomic tool designed to respond to aggression and coercion that was created in 2023 but has never been used. The ACI, which requires a qualified majority in the European Council, would allow the European Union to impose targeted countermeasures against disruptive foreign action designed to interfere with the European Union's sovereign policy choices, complementing traditional trade mechanisms. Its scope could be as wide as the European institutions consider necessary.

For example, it could be used to freeze assets and establish travel bans on U.S. citizens or entities (the United States has already banned the entry into the United States of a number of EU citizens, including former EU Commissioner Thierry Breton). It could also be focused on trade and investment by imposing tariffs, export restrictions, or blocking U.S. investments in the European Union.

European responses could range very concretely from tariffs on products from conservative congressional jurisdictions, such as Kentucky bourbon, to the denial of mergers and acquisitions. As Europe becomes more fertile ground for tech growth, triggering investment reviews could block U.S. companies from acquiring European firms, potentially imperiling long-term U.S. AI ambitions.

Short of invoking the ACI, the European Union could pursue other tariff measures. As part of ongoing bilateral trade negotiations, the European Union had extended until February 5, 2026, a range of retaliatory tariffs on U.S. products that amount to €93 billion ($108 billion). Removing those exemptions could reinstate tariffs on a host of products, ranging from aviation inputs to wine and spirits.

Given the European Union's role as a regulatory superpower and one of the world's largest markets, these measures could have extraterritorial effects, shaping corporate behavior well beyond Europe. For markets, the key signal would be that geopolitical considerations are once again overriding efficiency and predictability in global trade, an environment in which uncertainty rises, investment horizons shorten, and risk premia rise.

A transatlantic trade tool exchange could also reverberate across insurance markets. Whereas insurance companies have long priced in risks surrounding geopolitical hotspots, such as the Taiwan Strait, pricing in intra-NATO disputes would be unthinkable and would likely cause major revisions to risk underwriting, for example, the risk that vessels crossing the Atlantic encounter military danger.

Financial instruments would further amplify the economic shock. The European Union could restrict access to European capital markets, limit financing and insurance for designated entities, and increase scrutiny of transactions linked to exposed sectors. Furthermore, if EU member states were to aggressively start to unload their massive holdings of U.S. treasuries, it would have direct impacts on the ability of the U.S. government to efficiently fund its existing debt, with ramifications across the U.S. economy. Europeans also own approximately $8 trillion in U.S. bonds and equities, according to a Deutsche Bank report released recently that suggested Europeans could sell off these assets. At Davos, Secretary of the Treasury Scott Bessent said, "This notion that Europeans would be selling U.S. assets came from a single analyst at Deutsche Bank." Secretary Bessent also said the CEO of Deutsche Bank had since called to distance the bank from that report. However, on January 20, 2026, Danish pension fund AkademikerPension announced it would sell $100 million in U.S. treasuries.

A European flash sale of U.S. government debt, however, would be much more effective if it were combined with the issuance of large quantities of euro-denominated sovereign bonds. Several recent proposals explain how this could be done effectively and without an increase in EU debt levels.

Additionally, the European Union's digital and competition framework could provide a further-and politically sensitive-channel of economic pressure. The enforcement of the Digital Markets Act and the Digital Services Act, including the imposition of substantial fines on large U.S. technology companies and platforms, could take on heightened strategic significance in a context of severe transatlantic tension. While formally grounded in competition and consumer-protection objectives, aggressive or accelerated enforcement would be perceived by markets as part of a broader geopolitical response, increasing risk for major U.S. firms and potentially affecting valuations, cross-border data flows, and investment strategies in the digital economy.

U.S. technology firms, including very large online platforms (VLOPs), have enjoyed tremendous success in European markets. With a population of 450 million, a diversification away from U.S. VLOPs could cause lasting damage to platforms. Cloud service providers have also been exceptionally successful in Europe. U.S. cloud service providers account for roughly 70 percent of the market in Europe. A growing sense that U.S. tech companies represent a vulnerability rather than an asset could invite long-term diversification and de-risking, imperiling one of the core functions that supports U.S. geopolitical power abroad.

In a similar vein, the European Union could try to use its climate-related regulatory framework to go after the profits of large U.S. multinational energy companies. While the European Union ultimately decided to weaken the most stringent elements of its initially proposed Corporate Sustainability Due Diligence Drive legislation-in part due to vocal and sustained criticism from U.S. firms-it could turn to earlier forms of the legislation as a means of expanding its tool kit to respond to aggressive U.S. moves against European territory.

If the European Union were to conclude that a U.S. seizure of Greenland was irreversible, the long-term implications for EU financial institutions' deep entanglement with the dollar system could be profound. Already, European governments, the European Central Bank, and major European financial institutions are debating the need for greater European sovereignty and strategic autonomy over cross-border payment systems. They are also working to increase the international role of the euro, as a potential challenger to the dollar in the context in which U.S. debt is high (and rising) and there are doubts about the future independence of the Federal Reserve.

In this scenario, the threat of U.S. sanctions disrupting European access to the international dollar system will dramatically speed up European efforts to develop, implement, and push the widespread adoption of European-owned and controlled financial transaction platforms. The key players in determining the future of the European financial sector could choose to elevate any of the following options politically: the digital euro-a Central Bank Digital Currency (CBDC); a private sector-developed digital payments platform designed to rival U.S. giants like Visa or Mastercard; the creation of a highly liquid European safe asset in the context of the consolidation of the capital markets union, or euro-denominated stablecoins to supplant U.S. dollar-linked start-ups like Circle and Tether. Regardless of what happens in Greenland, these conversations are already taking place and are likely to continue (and intensify).

Europe has spent decades building economic leverage without having to recognize it as a tool of geopolitical consequence. Now it faces a moment of reckoning. The ACI, Digital Decade enforcement, and financial independence are instruments of economic statecraft. The current compact could end not with a joint statement, but with tariffs, frozen assets, and the hum of servers routing payments around New York instead of through it. The European Union will suffer economic damage, but these actions could show that European capitals are willing to walk the walk and create a truly geopolitical Europe.

Federico Steinberg is a visiting fellow with the Europe, Russia, and Eurasia Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Emily Benson is a senior associate (non-resident) with the Europe, Russia, and Eurasia Program at CSIS. Nicholas Fenton is an associate director and associate fellow with the Europe, Russia, and Eurasia Program at CSIS.

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