Since February 2022, Europe has radically reconsidered its approach to security. The US increasingly signals it will no longer guarantee the continent's protection for free, forcing European countries to devise their own financial and military solutions. Recent decisions in Brussels, Berlin, and Paris show this is not just about higher defense budgets, but a fundamental overhaul of the EU's financial architecture—with joint debt issuance at the core.
Europe’s previous security arrangement, with the US protecting the EU via NATO, had long seemed unshakable. However, Trump administration policies became a catalyst for change. By June 2025, NATO allies agreed to spend up to 5% of GDP on defense, with a third earmarked for core military needs. For the EU, this means €560–600 billion yearly just on defense.
The European Commission responded by creating a shared debt market, similar to US Treasuries. Under the Readiness 2030 package, the Safe Fund was launched for €150 billion, dedicated to joint defense purchases. First payments began in March 2026, and these Eurobonds received top credit ratings of AAA or AA+.
Through the late 2020s, the EU will issue over €1 trillion in new bonds. This surge creates a 'bear steepening' effect—new bonds yield 3%, making older ones less attractive. Defense companies, large banks, and the euro itself are among the main beneficiaries as demand for euro assets grows globally.
Nevertheless, Italy’s government debt remains a risk; spreads with German Bunds could once again signal instability. Implementing this policy requires internal reforms or constitutional changes in countries like Germany. Rising inflation and the need to balance military and social spending add difficulties. For the first time, the dollar faces a serious competitor as Europe's financial power is now underpinned by a new sovereign market architecture.
