The signal coming from Washington is as clear as possible: the United States is no longer willing to guarantee the security of its allies “unconditionally and for free”. Whether it was a provocation, a negotiating tactic or simply a strategic message, President Donald Trump's threat of a possible “takeover” of Greenland crystallized a reality that had been simmering for years: the American umbrella no longer comes without an invoice.
American Stock Exchange/PHOTO: X
For Europe, but also for the middle powers of the world, this equates to the end of the post-Cold War security order. “The previous security arrangement no longer exists,” German Chancellor Friedrich Merz said at the Munich Security Conference.
Europe accelerates: from fiscal taboo to common debt
If Europe really takes charge of its own security, the bill is huge. Higher military spending, joint procurement, strengthening intelligence and logistics capabilities – all of these require money and quick decisions. And what used to take years of negotiation is now decided in months.
Red lines on fiscal discipline, common Union borrowing and defense integration have faded. What is taking shape is not a simple policy adjustment, but a rewriting of the European institutional and financial architecture, writes marketwatch.com.
Among the key decisions:
– the creation of a SAFE (Security Action for Europe) fund of 150 billion euros for centralized defense financing;
-reorienting the mandate of the European Investment Bank to support defense supply chains;
-budgetary flexibility through clauses that allow military spending to be increased by up to 1.5% of annual GDP;
– the possible use of the European Stability Mechanism as a support tool for investments in collective security.
In parallel, NATO is pushing for allocations of 3.5% of GDP for defense – a threshold that, for many European economies, means a far-reaching structural change.
The birth of a market of over 1000 billion euros
The tax consequences are impressive. Between the joint loans from the pandemic period (around 650 billion euros), the support for Ukraine and the new defense issues, Europe is heading towards a Eurobond market that could exceed 1,000 billion euros.
However, the difference to the pandemic shock is major: monetary policy is no longer as accommodative. The European Central Bank no longer applies massive quantitative easing programs that compress yields. As a result, long-term interest rates rise and yield curves steepen.
Germany, Japan and other developed economies are seeing yields at levels not seen in decades. In this context, a deep and liquid Eurobond market could become a real alternative to US Treasuries.
Indirect pressure on Washington
For the United States, the moment is not exactly comfortable. The fiscal deficit remains high, and about $10 trillion of public debt matures this year. The Trump administration is looking for solutions to keep borrowing costs down amid social pressures on affordability and inflation.
But if Europe and other advanced economies simultaneously issue more debt to finance their defense, the competition for global capital intensifies. Risk premiums are rising, and long-term yields may rise, including in the US.
Thus, paradoxically, a strategy aimed at reducing the American “burden” could, through financial channels, amplify it.
The moment of the average powers
The phenomenon is not limited to Europe. Canadian Prime Minister Mark Carney was recently talking about the need for middle powers to anchor their sovereignty in four pillars: defense, energy, food and finance. The old model – American security and dollar dominance – is no longer enough.
Europe seems determined to internalize the costs of security and strengthen its fiscal balance. If it succeeds, it will not only become more strategically autonomous, but could emerge from this crisis with a deeper bond market and more integrated capital markets.
And this could represent, in the long term, one of the most important changes in the global financial balance of the last decades.
