Rising tension

Gustavo A Cano, CFA, FRM
5 hours ago
2 min read

NATO (North Atlantic Treaty Organization) was created primarily as a collective defense alliance to counter the growing threat of Soviet expansionism in Europe after World War II. The alliance was officially established on April 4, 1949, with the signing of the North Atlantic Treaty by 12 founding members: the United States, Canada, Belgium, Denmark, France, Iceland, Italy, Luxembourg, the Netherlands, Norway, Portugal, and the United Kingdom. the Alliance was created to serve three main purposes: (1) deterring Soviet expansionism, (2) forbidding the revival of nationalist militarism in Europe through strong North American involvement, and (3), encouraging European political integration. The current episode with Greenland is confronting NATO members with the same ultimate goal the organization set at the beggining of its existence, but dividing its members. As the U.S. is trying to negotiate a purchase by force, European countries are sending troops to Greenland to defend it from another NATO member (US). This move benefits Russia, weakens the alliance, and creates distrust among founding members. It also benefits China. It means Nationalism is coming back strong, and multilateral institutions are at risk. This also has an economic component, since Trump has announced A 10% tariff on goods from eight NATO countries (Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands, and Finland) starting February 1, 2026. But the tariff would increase to 25% on June 1, 2026, and remain in place “until such time as a Deal is reached for the Complete and Total purchase of Greenland.” The EU will likely fold and they will reach an agreement that allows the U.S. to get what it wants, and this may be the only way to move things fast with a bureaucratic Europe, but this episode is damaging the relationship among countries, as nationalism breaks multilateral historic relationships. What is the point of having a World Trade Organization if everything is renegotiated every week outside its scope? Markets will eventually wake up to a more frictioned exchange of goods and services.