The Horizon: Geoeconomic Pressures Rise

Signals: week of 17 January 2026 - European industrial interest, Fed under pressure, risk of geoeconomic confrontation, and Arctic friction in the transatlantic alliance.

Top Signal: Strengthening The European Industrial Interest

There was evidence this week of pragmatic realism in EU responses to global uncertainty shaping its outlook and decision-making.

In a speech in Madrid this week, Luis de Guindos, Vice-President of the European Central Bank, warned of a shift to a new paradigm where the erosion of the multilateral, rules-based system, which has long supported global trade and international relations, is leading to one where rule of law principles are challenged. With domestic demand seen as the main engine of growth in the coming quarters, he said that the global economy is facing a period of profound transformation and heightened uncertainty and that the only viable path forward is promoting stronger cooperation and deeper integration within Europe.

Meanwhile, in Brussels, the EU Commission this week published a new guidance document regarding its imposition of tariffs of up to 35% on imports of battery EVs from China. The main elements of this additional guidance, which is reportedly intended to provide “a very clear framework,” address the potential for a Minimum Import Price based on a non-subsidised price, an annual cap of vehicles to be imported, and a commitment to significant BEV-related investment projects in the EU. While this development has been reported as welcomed by China, it also signals a leveraged negotiating position by the EU. ECB EU News European Commission

Key Signals

Fed Under Pressure

We learned this week that the US Department of Justice served the Federal Reserve with grand jury subpoenas, probing Chair Jerome Powell’s June 2025 Senate testimony regarding headquarters renovations, where reported costs escalated to $2.5 billion. In an extraordinary video made public Sunday, Chair Powell said, “The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President”.

These developments highlight tensions testing Fed independence, a public good, which has allowed it to make monetary decisions in the long-term interest of US economic stability rather than serve short-term political goals. When independence is threatened, investors tend to demand a “term premium,” that is to say, they charge the government, and by extension, consumers, more interest on long-term loans because they fear their money will be worth less in the future. The financial markets ultimately depend on trust; if it is lacking, the price goes up. While the Fed’s defiant response signals institutional resilience, vigilance is also warranted. A lack of independence at the Fed could also have repercussions for the global economy.

The latest development follows a decision last September by the Justice Department to probe into Governor Lisa Cook over mortgage fraud allegations. Chair Powell’s term ends in May 2026, though he could remain in his role as a governor until 2028. Markets are watching for potential nominees that could be appointed as the next chair and trying to decipher what that means for the institution’s independence in the coming years. Fed WSJ NYT

The Risk of Geoeconomic Confrontation

This week, the influential Global Risks Report from the World Economic Forum, which is based on the insights of over 1300 experts worldwide, identified economic confrontation as the top risk most likely to trigger a material global crisis in 2026, ahead of State-based armed conflict. This risk is expected to deepen as governments continue to use economic tools in the service of national security goals. That means multilateralism and multilateral institutions such as the World Trade Organisation will likely face ever stronger headwinds as rising evidence suggests the decline of the rules-based international order. The rise of realpolitik on the global stage could mean that those countries least able to back up their interests with credible deterrents could lose out. WEF

Arctic Friction in the Transatlantic Alliance

The foreign ministers from Denmark, Lars Lokke Rasmussen, and Greenland, Vivian Motzfeldt, were at the White House in Washington this week for a high-stakes meeting with Vice President J.D. Vance and Secretary of State Marco Rubio to discuss President Trump’s wish to acquire the Arctic island, which is an autonomous country within the Kingdom of Denmark.

The Danes and the Greenlanders want to preserve the status quo, but President Trump has insisted that the US needs to acquire the mineral and resource-rich country for security purposes, arguing that the Danes can’t defend it against the Russians or Chinese, who have an interest in the Arctic region. The President has said that the acquisition is needed for his proposed “Golden Dome” missile defence system.

Premeeting rhetoric suggesting that “utilizing the U.S. Military is always an option”, which, even just to suggest it, tests rhetorical norms with a loyal NATO ally. However, the Danish defence minister is reported to have called a potential US attack on Greenland “completely hypothetical”. This week, several European NATO countries deployed small numbers of military personnel to Greenland at Denmark’s request, but it was reported on Friday that President Trump had threatened tariffs on countries that do not support his plan to acquire Greenland.

It is not clear why the Americans need ownership, as should the island be attacked, Article 5 of the NATO charter would require the US to come to the defence of its Danish ally in any case. Moreover, the US already has a military base in Greenland. What is clear is that the ambitions of the US president are not going away any time soon. European and U.S. tensions over Greenland and Arctic resource control reveal real tension in the NATO alliance. The “frank but constructive” talks in Washington this week established a working group amid fundamental disagreement. Recent polling suggests most Americans oppose US control of Greenland. NYT WP Le Figaro The Guardian CNN BBC ABC

Strategy and Systems Insight

This week’s signals suggest the rules-based international order is now under significant pressure, with power-based economic logic gaining ground. The international systems seem to be in transition.

Across Europe, the United States, and the Arctic theatre, the logic of power is challenging the logic of markets. Institutions that once acted as stabilisers in the international system are increasingly becoming arenas of contestation, reflecting deeper system-level stress. However, it is important to point out that this shift is uneven, and there are also countervailing forces, such as diplomatic negotiations, that also remain in play.

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