Europe bulletin: UK stocks fall, Germany sees capital flight, France budget crisis
European markets opened the week on the back foot after Donald Trump reignited transatlantic tension with fresh tariff threats tied to a renewed push for “control” of Greenland.
The shock move jolted London and major continental indices, while EU capitals rushed to draft retaliation plans.
Beyond the immediate volatility, the episode is amplifying longer-term economic stress, fueling German capital flight, reshaping defence sector momentum, and deepening political fragility in France as Macron’s government leans on constitutional force to pass its 2026 budget.
Greenland tariff drama hits London markets
Trump’s latest Greenland power play rattled London investors on Monday, sending both the FTSE 100 and FTSE 250 lower after he threatened fresh tariffs on eight European allies, including Britain, unless the US gets a shot at buying Greenland.
The shock move, announced over the weekend, promises a 10% levy from February 1, escalating to 25% by June 1, on goods from the UK, Denmark, France, Germany, the Netherlands, Sweden, Norway, and Finland.
European markets quickly priced in the uncertainty, with the CAC 40 down 1.4% and the DAX falling 1.2%.
London’s blue chips proved relatively resilient, dropping just 0.6%, cushioned by defensive sectors and precious metals miners riding gold’s record highs.
Meanwhile, EU capitals scrambled to organise retaliatory tariffs worth roughly €93 billion on American goods.
Defence stocks surged on heightened geopolitical tension, while traders braced for further volatility ahead of Trump’s scheduled Davos appearance this week.
Trump’s Nobel grudge match
Trump’s personal beef with the Nobel Peace Prize committee just went geopolitical.
In a letter to Norwegian PM Jonas Gahr Støre, exposed by PBS on Monday, Trump claimed he no longer feels obligated “to think purely of Peace” because Norway’s Nobel Committee snubbed him, despite allegedly stopping “eight wars plus.”
The timing is seething: Støre and Finnish President Alexander Stubb had just appealed for de-escalation and a phone call to discuss the Greenland tariff threats.
Trump’s response weaponised his Nobel frustration, pivoting instantly to reasserting his demands for “complete and total control of Greenland,” arguing Denmark can’t defend it against Russia or China.
Støre calmly reminded Trump (again) that the Nobel Committee operates independently from his government.
The message reads less like diplomacy and more like a wounded ego unleashed on NATO allies, mixing personal grievance with territorial ambitions in a way that deepens transatlantic tension.
German capital flight: A 45% plunge in US investments
Germany’s investment exodus from the US just hit a new low.
Between February and November 2025, German firms sank just €10.2 billion ($11.1 billion) into the US, a staggering 45% collapse from nearly €19 billion the year prior, according to data from the German Economic Institute.
Even against the decade-long average of €13.4 billion, current flows are down 24%, researcher Samina Sultan noted.
The damage extends beyond greenfield projects: German exports to America fell 8.6% year-over-year (February–October 2025), marking the steepest decline since 2010 outside the pandemic.
Tariff threats and unpredictable trade policy are the culprits, leaving German multinationals, from automotive to machinery, in a holding pattern.
At Davos, German business chambers openly described Trump’s tariff regime as one of their “greatest burdens.”
Germany ranks third globally in US foreign direct investment, employing nearly 1 million Americans.
Yet Trump’s erratic negotiation tactics and escalating threats are forcing capital reallocation toward Europe and Asia.
France bribes socialists to avoid government collapse
France’s budget gridlock just became clearer: Macron’s government will ram through the 2026 budget using Article 49.3, a constitutional power-play that bypasses parliament, after Socialist support made a no-confidence vote less likely.
PM Sebastien Lecornu capitulated on Friday, announcing €8 billion in corporate surtaxes, a 50-euro monthly raise for low-income workers, and scrapped pension tax cuts to secure the left’s abstention.
The Socialists initially extracted their pound of flesh: €8 billion in extended corporate taxes (not the halved €4 billion he proposed), retained at full strength instead of being eliminated.
Lecornu also abandoned his “pro-business” agenda, refusing cuts to production taxes, a cornerstone of Macron’s second-term economic strategy.
Boris Vallaud, Socialist leader, signalled cautious approval, saying “the Minister’s announcements allow us to imagine that we will not need to vote no-confidence.”
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