The past couple of weeks have seen the most spectacular crisis escalation in the transatlantic relationship, over the US threat to annex Greenland, a self-governing territory of Denmark. It risked becoming a major conflict among the members of Nato, the most powerful security alliance in world history – until now.
On Wednesday, after a meeting with Nato’s secretary general, Mark Rutte, the US president, Donald Trump, backtracked on his threats to slap tariffs on countries that got in the way of his annexation project. As European leaders huddled together over dinner for a post-crisis debrief in Brussels on 22 January, they congratulated themselves on their unity and appreciated the intervention of Rutte, or “Daddy diplomacy”. If these really were the conclusions of the latest debacle in transatlantic relations, they are missing important parts of the story.
Rutte is well versed in dealing with Trump. It is likely that their conversation pushed the right buttons, offering him an offramp for his “psychologically important” need for Greenland. Earlier diplomatic talks between American, Danish and Greenlandic representatives addressing the reasons behind the US wish to annex Greenland – national security, the mineral resources under its land mass and its quick access to space – had not made the breakthrough. Further Nato and European assurances on these questions seem to be part of the “framework” that Rutte and Trump discussed to end the crisis, such as banning China from mining exploration and offering a base for the US Golden Dome project.
But what really changed the calculus was dangling the possibility of retaliatory measures to the tune of $93bn, making the markets jittery and Trump fold. Europe, too, can use economic leverage to its advantage.
Paradoxically, Europeans were far from united in resorting to retaliatory measures. Had Trump not U-turned on his tariff threats, it is far from certain that the EU would have found the qualified majority needed to activate its new and never used tool called the anti-coercion instrument (ACI), whereby the European Commission can establish whether a foreign power is using economic coercion to undermine the EU and, if it is, carry out proportionate deterrence and retaliatory measures. Measures can range from tariffs and blocking foreign access to public procurement, all the way to sanctions, which otherwise require unanimity. It was ultimately the reaction of the markets, which responded to the EU’s trade bazooka rather than its diplomatic manoeuvring, that was decisive in Trump’s climbdown.
The Greenland debacle showed that Europe can flip the table on its dependence on the US. This can be done through its economic leverage and smart diplomacy in Washington, by reaching out to institutional counterparts such as members of Congress and Republican representatives who might have some influence and can play a role in restraining the US executive. Europe can also use security cooperation in a productive way to counter concocted justifications for US action, and sharpen its economic toolbox for political ends. But it equally exposed, yet again, two glaring but familiar struggles.
The first is how to equip the EU with the power to use economic leverage in a political way – just as the US and China are able to weaponise their economic power to coerce other countries. As a community of law, the EU obviously differs from authoritarian states or executives that flout their domestic law to overreach abroad. But appropriate economic statecraft and strategy could still make Europe as a whole punch to its weight.
At Davos, European leaders made the connection between economic strength and global heft. The president of the European Commission, Ursula von der Leyen, reminded her audience of the opportunities that the collapse of the Bretton Woods system gave to Europe to grow. The German chancellor, Friedrich Merz, talked about Europe’s need to strengthen its economy. But they have consistently failed to tie these grand visions to practical steps, as the underwhelming implementation of the Draghi and Letta reports show.
The reluctance to activate the ACI was less about making economic and political tools work in tandem and more about unwillingness to use EU scale at the expense of its much smaller national wriggle room. Political leaders are keener to keep the power to block bank mergers and make phone calls to Trump than to work towards a Europe that has an economic and political role to play in tomorrow’s world, despite the growing public support for the EU.
The second and related issue is that the divisions within Europe about how to handle the US go beyond tactical questions of using the EU’s carrots and sticks. A cognitive dependence on the US is the result of generations of diplomats steeped in the transatlantic mindset. When Europeans have delivered strategy, such as in the wake of Russia’s invasion of Ukraine, it was in lockstep with Washington. In parts of eastern Europe, the US is core to the post-Soviet identity. Keeping the US involved in Europe in the face of the Russian threat is seen as a priority. Add to the mix the pro-Trumpians, and the cacophony is loud. The Italian prime minister, Giorgia Meloni, left the informal summit without commenting. It is unclear how long she can keep up her double game between Brussels and Washington. Viktor Orbán has long stopped working with his fellow EU members and now has agreed to join the autocratic crowd on Trump’s “board of peace”.
Europe’s cacophony is seen as a sign of weakness at home and abroad, and some of these differences may never be bridged. European leaders have preferred flattery and appeasement to tough talk, losing their credibility with the US but not with the markets, which took the possibility of EU retaliation seriously. The Greenland lesson suggests there are ways to turn the cacophony into “strategic ambiguity”, by keeping antagonistic powers uncertain about the full scale of the EU’s response, and through a purposeful use of Brussels’s sophisticated and multi-use toolbox.
Rosa Balfour is director of Carnegie Europe
