America's Davos climbdown shows humiliation has its limits

Donald Trump’s Greenland U-turn has brought relief to financial markets and a European Union that was staring at a crippling tariff war and humiliating territorial annexation by its U.S. ally. It won’t repair the lasting damage to the trans-Atlantic relationship. Bullying, blackmail and derision are now America’s preferred way of settling its endless grievances. Europe has to make sure this week’s confrontation with reality isn’t wasted.

The Trump administration’s methods to try to get hold of this Arctic "piece of ice" — from calling Denmark "irrelevant" to threatening 200% tariffs on French wine — suggest it believes belittlement is the way to get Europe’s attention, force it to "shape up" militarily and offer concessions in any negotiations. With the European Union dependent on the U.S. for its defense (and Ukraine’s), energy and technology, it’s a soft target; not least because of its ponderous, deliberative nature, mocked by U.S. Treasury Secretary Scott Bessent as "the "dreaded" working group." Divisions between 27 member states don’t help.

But this game of Davos Hold ‘Em has also revealed America’s tendency toward hubristic miscalculation. EU leaders such as Emmanuel Macron, clad in aviator sunglasses, were much more alive this time to the costs of backing down with territorial sovereignty on the line. Public opinion in Britain and France is opposed to letting Greenland go by force; even far-right parties no longer echo MAGA talking points. The European Parliament halted a U.S. trade deal and counter-tariffs were on the table. "Being a happy vassal is one thing, being a miserable slave is something else," said Belgian Prime Minister Bart de Wever.

No doubt jittery financial markets — Trump’s kryptonite — contributed to an eventual Greenland climb-down. As did the Trump-whispering Mark Rutte, head of the North Atlantic Treaty Organization, who said in an interview with Bloomberg Editor-in-Chief John Micklethwait that a negotiating breakthrough was reached by focusing on Arctic security rather than sovereignty.

Yet even the swaggering U.S. administration must be slowly waking up to the costs of losing Europe. Contrary to Trump’s claims, NATO is not a one-way street. Europeans are unlocking joint weapons-procurement plans such as the €150 billion ($175 billion) SAFE fund, a €90 billion loan for Ukraine and in some cases are spending more proportionally on defense than the Americans.

The same president who is "incentivizing" Europeans to look after their own security — even Belgium has met NATO defense-spending targets — may find out that a more self-reliant continent will be far less deferent. Ex-US official Celeste Wallander warned in Foreign Affairs last year that spurning Europe would leave the U.S. "alone and depleted."

It was telling that business leaders praised the EU’s newfound boldness. Conor Hillery, JPMorgan Chase & Co.’s co-chief executive officer for Europe, spoke on CNBC about the welcome evidence this week of "more cohesion among European leaders, more policy driven toward business growth, stability, innovation, investment and so forth."

With Greenland yet another pressure point that Trump will wield at his convenience — and with Ukraine’s fate in the balance — Europe shouldn’t rest easy or waste this opportunity. Macron and others’ apparent determination not to cower before the emperor fits the moment but vulnerabilities persist. Europe’s low-growth economies are vulnerable to tariff fights. Stretched budgets are struggling to meet rearmament requirements. The industrial homefront needs shoring up against Chinese competition. And for countries like Poland, the threat of losing U.S. protection against Russia remains existential, as my colleague Marc Champion writes.

What’s needed is a strategy to make sure Europe can better absorb the costs of bullying. That means returning the occasional punch, but also recognizing that the world has changed and that domestic fights with populists need to be won, too. This will entail doing more for domestic producers than blithely signing up for new free-trade agreements like the EU’s Mercosur deal in South America. That’s almost as unpopular in France as Trump is, and Macron was right to label it a deal from another era.

Europe urgently needs to shore up its single market to replace lost exports abroad, bringing down internal barriers and boosting investment — as former Italian Prime Minister Mario Draghi has called for — to make up for lost productivity and growth. The harsh new geopolitical reality means putting domestic industry first with "Buy European" provisions at a time when imports from China are hammering carmakers.

And it means a renewed push on defense, backed by joint debt to ensure the future spending burden of as much as $720 billion annually is shared and free riders can longer shirk their obligations. It’s been tough to convince all countries of the merits of plans to replace trillions in national debt with common bonds. But with a future of "miserable" enslavement constantly being brandished by Trump’s lackies, if not now, when?

This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. Lionel Laurent is a Bloomberg Opinion columnist writing about the future of money and the future of Europe. Previously, he was a reporter for Reuters and Forbes.