An Arctic Chill In Greenland

By Elwin de Groot, Head of Macro Strategy at Rabobank

You may already have buckled yourself up, but an arctic chill may also require you to wear an extra vest these days. President Trump and some officials in his administration amplified threats to take Greenland. Preferably by “buying” it, but by force if necessary.

The White House yesterday said it is discussing options for acquiring Greenland, including potential use of the military. The key reason put forward in a statement is that it sees this action as neccessary to “deter our adversaries in the Arctic region”. “The president and his team are discussing a range of options to pursue this important foreign policy goal, and of course, utilizing the U.S. military is always an option at the commander-in-chief’s disposal,” the White House said.

Several government officials did try to take the sting out of that last sentence. US special envoy to Greenland, Jeff Landry, told CNBC that Trump isn’t ready to seize the island and the President “supports an independent Greenland,” whilst the Wall Street Journal reported that Secretary of State Marco Rubio told lawmakers during a classified briefing on Monday that recent administration threats against Greenland did not signal an imminent invasion and that the goal is to buy the island from Denmark.

Meanwhile US Senate Democrats have said they plan to introduce a resolution to block Trump from invading Greenland. The US has portrayed its action in Venezuela as support for the ‘arrest’ of Maduro, which -some argue- offered the president more leeway. But the Greenland case may not be so easy to fit into that category.  

Still, the threat remains wide open on the table now. And that this risks driving a big wedge between the US and its allies is clear. Earlier this week, Denmark’s Premier Mette Frederikson had already warned that, while she is taking the threats by the Trump administration seriously, “everything stops, including NATO and thus the security that has been established since the end of the Second World War”, should the US choose to attack another NATO country.

What is interesting, is that the US has long neglected its military presence on Greenland. Since 1951 it has had a Defense Agreement with Denmark, establishing the operation of Pituffik (Thule) Air Base on the island. During the Cold War this hosted up to 6,000 US personnel across several camps; today that presence has shrunk dramatically to roughly 150 service members. Last June Denmark’s parliament expanded US access to the island through the 2023 Defence Cooperation Agreement (DCA), giving it broad rights to station personnel, store equipment, conduct maintenance and exercises and have jurisdiction over US troops.

The reference to these existing arrangements was also a key feature in a (quite unusual) joint Paris Declaration – Robust Security Guarantees for a Solid and Lasting Peace in Ukraine, European leaders clearly wanted to project some rare Euro-Atlantic unity. The statement suggests, among other things, that the US would support a US-led ceasefire monitoring and verification mechanism and that there will be binding commitments to support Ukraine in the case of a future armed attack by Russia. If approved by Washington this would be a significant step forward, although many details still need to be fleshed out. It is also very unclear how this would land in Russia and –if Russia dismisses the plan– how allies and particularly the US would respond.

So far, markets have remained largely unfazed despite the geopolitical landslides that have been taking place in recent weeks. The S&P 500 hit a fresh record high yesterday and so did the Eurostoxx 600 index. Whilst Treasury yields rose by 1 to 2 basis points, European yields slipped, as investors took their cues from mixed PMI surveys and relatively benign inflation data from the region. The euro also weakened vis-à-vis the dollar, with EURUSD falling below the 1.17 handle.

December PMI surveys for Spain and Italy showed contrasting developments, with Spain surprising positively (composite index up 0.5 points to 55.6) but Italy negatively (composite index down 3.5 points to 50.3). Together with small downward revisions in the French and German PMIs, the overall message is that the European economy likely entered a soft spot towards the end of 2025. This confirms our cautious view on the economy for the next several months.

Meanwhile, inflation data surprised to the downside. French inflation was down one notch in December, where expectations were for a slight rise. The headline print moderated to 0.8% from 0.9% whilst harmonized inflation eased to 0.7% from 0.8%. This print again underscores that France remains in the lower league when it comes to inflation in Europe. The fall in inflation was mainly attributed to a more pronounced decrease in energy prices, particularly petroleum, INSEE noted. Fresh food inflation accelerated, whilst the decline of prices in manufactured goods moderated to -0.4% y/y from -0.6% y/y. Services inflation stayed at 2.2% y/y.

In Germany, the fall in inflation was more pronounced. Harmonized inflation for December dropped no less than 0.6 percentage points to 2% (consensus: 2.2%). Although a fall in food and energy inflation added their bit, a significant fall in core inflation – in contrast to the French numbers – was a key driver for the German inflation rate. The national measure for core inflation dropped 0.3 percentage points. There were notable declines in prices of clothing and recreation. The latter tend to be volatile items and quite sensitive to distortions in seasonal patterns (such as the timing of holidays etc.), so not all of the drop in core inflation may stick as we head into 2026.

Overall, though, the benign inflation data from Germany and France shifted investor’s focus to the possibility that the ECB could still cut rates if both the economy and inflation were to slip further in the months ahead. The ECB doves have been relatively quiet of late, but these kind of numbers are sufficient to keep some speculation alive.