You might not have had a stress test of the Western geopolitical alliance on your bingo card for 2026, but all of a sudden that’s where we are. So what does the escalating fight over Greenland mean for European credit markets?

Trump’s announcement of 10% tariffs on imports from the UK and seven European countries from next month is not something credit PMs can immediately price in. This is partly because of last year’s TACO (Trump Always Chickens Out) trend — people still remember how the tariffs announced on ‘Liberation Day’ were softened within days.

But lately, the TACO vibes seem to have been supplanted by the markedly more aggressive Donroe Doctrine, particularly after the US military operation in Venezuela. The new set of tariffs, this time used as a pressure point to acquire Greenland, is being viewed through a different lens, with 9fin sources anticipating less immediate upheaval. Loans are still being repriced, CLOs are printing tighter, an uptick in M&A is still on the cards, and European sovereigns are still cranking out bond issues. Markets have not fallen out of bed.

But what is clear for many market participants is that there has been a step-change in US-European relationship dynamics with this new affront to the historic partnership.

Nato in the balance

Europe’s increasingly robust rhetoric in response to Trump’s threats indicates the extent to which the bloc feels like the unity of Nato is being challenged — and the extent to which it is worth protecting.

“The Trump administration's challenges to Greenland's sovereignty and aggressive tariff posturing signal more than policy shift,” said Orlando Gemes, chief investment officer at Fourier Asset Management. “They represent a fundamental reshaping of the post-war global order that markets are struggling to price.”

The spread of potential outcomes here is very wide, and the potential extremes are drastic. Many of them seemed borderline unthinkable just a few weeks ago. Taking the tail risks seriously is now more important than ever, according to Gemes.

“Markets seem positioned for a return to normalcy, but the actual distribution of outcomes has shifted dramatically toward disruption,” he said. “We're entering a world where hard assets and optionality will command premiums that reflect genuine structural uncertainty rather than temporary dislocations.”

It is widely reported that EU leaders are preparing retaliation, and all this unfolds against the backdrop of Davos, where the theme this year is dialogue in a more contested world. Trump is due to speak on Wednesday, alongside ECB president Christine Lagarde.

There are likely many twists and turns over the next few days and weeks, which will put an emphasis on being nimble. We take a look at sectors which could benefit and suffer as a result of this. But here are some themes that have emerged in our conversations with market participants so far this week.