<div id="readability-page-1"><div> By Mark Bathgate and Fabio Natalucci Financing for defense spending could bring Europe more integrated capital markets The U.S. is no longer prepared to guarantee security unconditionally and for free. Whether intended as provocation, leverage or strategic signaling, the U.S. threat to &#34;take over&#34; Greenland captured something unsettling about the current phase of American power: an increasingly transactional approach to security, territory and alliances. It also crystallized a reality that has been building for years: The U.S. is no longer prepared to guarantee security unconditionally - and free. For Europe and for the world's middle powers, it means the post-Cold War international order with its security bargain &#34;no longer exists,&#34; to use the words of German Chancellor Friedrich Merz at the Munich Security Conference last week. What does it mean for Europe to assume primary responsibility for its own security? Decision-making that once took years has accelerated into months. Red lines around fiscal rules, joint borrowing at the European Union level and defense integration have all blurred. What is emerging is not a single policy shift, but a set of agreements that amount to a reordering of Europe's institutional, security, fiscal and financial architecture. As countries rush to finance defense spending and build resilience, the fiscal and financial consequences are only beginning to surface. Long-term sovereign yields in advanced economies - from Germany to Japan-are rising to levels last seen decades ago. The risk for the U.S. is that such dynamics will act as a gravitational pull on domestic long-term yields as the Trump administration focuses on lowering borrowing costs for households to address an affordability crisis. Go big and move fast If Europe is serious about strategic autonomy, the numbers are daunting. Moving from reliance on U.S. defense to a more self-sufficient position requires significant increases in military spending, joint procurement, intelligence capabilities and logistics. At the policy level, several landmark decisions have either been agreed to or are moving rapidly toward implementation. First, the creation of a EUR150 billion SAFE (Security Action for Europe) facility provides centralized funding for defense spending. This is complemented by a capital increase and mandate shift at the European Investment Bank (EIB), enabling it to deploy up to EUR150 billion specifically toward E.U. defense supply chains. Long focused on green and infrastructure financing, the EIB is now explicitly part of Europe's security apparatus. Second, national governments are being given fiscal flexibility. Through the Maastricht escape clause, countries can increase defense spending by up to 1.5% of GDP per year, amounting to as much as EUR500 billion in aggregate. This is reinforced by a NATO commitment to 3.5% of GDP for defense spending. Third, the European Stability Mechanism (ESM) could be repurposed for defense. Once synonymous with crisis conditionality, the ESM is being reframed as a backstop for collective-security investment. Finally, there is urgency around supply-side reforms, notably the Savings and Investment Union (SIU), to ensure Europe can mobilize private capital at scale rather than relying entirely on public funding. Taken together, these moves represent a decisive break from Europe's debt orthodoxy. The birth of a trillion-euro market The fiscal consequences are enormous. Combining new defense-related issuance with existing joint borrowing programs, Europe is on track to establish a Eurobond market exceeding EUR1 trillion. This includes approximately EUR650 billion from the coronavirus era, EUR95 billion for Ukraine and several hundred billion euros (EURUSD) from new defense facilities and national borrowing enabled by fiscal exemptions. This represents a debt shock second only to the pandemic. The crucial difference, however, lies in monetary policy. The overall policy stance of the ECB is not as accommodative. Importantly, there is no pandemic-style QE, which would put downward pressure on sovereign yields or compress spreads. Joint issuance is no longer just a political aspiration: It is a market necessity. Europe is being pushed - by geopolitics rather than ideology - toward the equivalent of a federal debt market. Middle powers and the 'Carney moment' The world's middle powers must actively choose how they anchor themselves - strategically, financially, and institutionally. This shift is not occurring in isolation. As Canadian Prime Minister Mark Carney argued in his recent Davos speech, the world is moving toward a system where middle powers must actively choose how they anchor themselves - strategically, financially and institutionally. The old model of free U.S. security and dollar dominance is no longer viable. Defense is one of Carney's four pillars of sovereignty, along with food, energy and finance. Autonomy requires fiscal balance sheets. Europe is moving toward internalizing security costs and building fiscal capacity. Others, from Canada to parts of Asia, face similar decisions. Global interest rates: The spillovers begin A deep, liquid Eurobond market could compete directly with U.S. Treasurys for global capital. The market implications extend beyond Europe. Across advanced economies, fiscal spending on defense and sovereign-debt issuance are rising simultaneously. Long-term yields in Japan have surged to levels last seen in the late 1990s. Ten-year German bund yields BX:TMBMKDE-10Y are near 3%, even as market participants expect the ECB to lower short-term rates. The result is a sharp curve steepening, driven by a repricing of term-premia. This has not only market structure consequences within Europe but also cross-border implications. A deep, liquid Eurobond market could compete directly with U.S. Treasurys for global capital if institutional investors were to perceive such a market as a viable alternative at scale. An uncomfortable situation for the U.S. For the U.S., timing could be challenging. The U.S. fiscal outlook has been deteriorating for years, and about $10 trillion in government debt is coming due this year. As the November midterm elections approach, the Trump administration is focused on affordability and is exploring unconventional means to keep borrowing costs down. As Europe and other advanced economy countries issue more sovereign debt, global term premiums are set to rise. Increasing competition for global savings could put upward pressure on Treasury long-term yields. In that sense, the Greenland episode may prove emblematic. A strategic posture designed to reduce American burdens may, through financial channels, end up raising them. And Europe, if it rises to the challenge, may end up with a deeper bond market and more integrated capital markets. Mark Bathgate is the chief executive of Tweeddale Advisors in London. Fabio Natalucci is the chief executive officer of the Andersen Institute for Finance &amp; Economics in Washington, D.C. More: The Munich conference ended the post-war order, says Ray Dalio. How to invest if great powers collide. Plus: The great rotation: Why this fund manager is pivoting from the U.S. toward Europe -Mark Bathgate -Fabio Natalucci This content was created by MarketWatch, which is operated by Dow Jones &amp; Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal. <pre></pre> (END) Dow Jones Newswires 02-21-26 1447ETCopyright (c) 2026 Dow Jones &amp; Company, Inc.</div></div>

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歐洲正朝着一個更加一體化的資本市場邁進，這一變化受到國防支出增加的推動，可能會形成超過 1 萬億歐元的歐元債券市場。這一轉變反映出對美國安全保障的依賴正在減弱，國家在國防預算上獲得了更大的靈活性，具有重要的財政影響。建立集中融資機構和重新利用現有金融機制標誌着歐洲金融架構的重新調整。隨着歐洲尋求戰略自主，深厚的歐元債券市場的出現可能會對美國國債在全球資本市場的地位構成挑戰，從而影響全球利率和發達經濟體的財政政策

Europe's military buildup could create a bond market powerhouse that threatens U.S. Treasurys

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歐洲的軍事擴張可能會形成一個債券市場強國，對美國國債構成威脅