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Investors pivot to Eurobonds as Trump tariffs and geopolitical volatility rattle US Treasury market

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Foreign investors are increasingly turning toward European Union debt as Donald Trump’s trade tariffs and a foreign policy punctuated by conflict drive nervous markets to seek stability in EU bonds.

According to a report by POLITICO, this shift represents welcome news for the European Commission, which has been scaling up bond issuances to fund new mandates, including increased defense spending and support for Ukraine’s war efforts.

Brussels is framing its “sales pitch” around a distinct narrative: the EU’s slow, consensus-driven decision-making process serves as a bastion of stability in a world upended by Trump. By investing in Eurobonds, the Commission argues, investors can secure a stake in that stability.

Data obtained by POLITICO reveals that fund managers from the United Kingdom, Asia, the Middle East, Africa, and Oceania have purchased 43% of the Eurobonds auctioned by the Commission since the start of 2026. This marks an 8% increase over the average of the last six years. The trend places EU Budget Commissioner Piotr Serafin in a strong position ahead of a scheduled promotional tour in mid-April, where he will pitch Eurobonds to investors in Hong Kong, Malaysia, and Singapore.

Since the beginning of 2026, the Commission has issued €52 billion in bonds, up from €44 billion during the same period in 2025.

“Demand for Europe is rising due to its alignment with the rules-based international order and values,” a senior EU official told POLITICO. “Consequently, demand for EU bonds is also on the rise.”

The eurozone’s rescue fund and its predecessors—the European Stability Mechanism (ESM) and the European Financial Stability Facility—have observed a similar trend. According to ESM data presented in January, these institutions have issued a total of €566 billion in bonds since 2010 and sold a record amount of debt to non-EU countries in 2025.

Since the US and Israel began bombing Iran in late February, central banks, governments, and international investors have sold a net total of more than $80 billion in US Treasuries. On this side of the Atlantic, the EU is leveraging these developments to solidify its reputation as a safe haven for anxious foreign investors.

“EU leaders are emphasizing that Europe is predictable in terms of policy, and in today’s global geopolitical environment, this will be noticed by many investors and market participants,” said Ken Egan of the KBRA credit rating agency.

The sell-off in the US does not yet constitute a mass exodus. While the US Treasury market stands at approximately $31 trillion, the market for bonds issued by the European Commission barely reaches €1 trillion. However, the rising demand for Eurobonds, coupled with a robust credit rating, allows the Commission to borrow at lower costs than many indebted EU governments.

In a sign of growing market confidence, the yield spread on Commission bonds over German government bonds—long considered the safest in the eurozone—has narrowed to approximately 40 basis points. This is down significantly from 70 basis points in 2022. One basis point is equal to one-hundredth of one percent. Meanwhile, US Treasuries offer investors a premium of over 130 basis points compared to German Bunds.

Factors beyond concerns over Trump’s policies are also at play. Some investors purchase EU bonds specifically for their very low risk profile, while increased issuance volumes have improved market liquidity, making it easier for investors to trade these securities.

Without common debt, governments would have struggled to manage consecutive crises independently. EU debt has funded a €650 billion post-pandemic recovery fund, €150 billion in low-cost loans to bolster military spending across the bloc, and a €90 billion package to assist Ukraine’s defense against Russia—the latter of which is currently blocked by Hungary.

The burgeoning interest in Eurobonds is also encouraging the EU’s ambition to challenge the dollar as the world’s primary reserve currency. The US has held this status for decades, formalized by the 1944 Bretton Woods agreement, which positioned the dollar as the anchor of the global financial system and facilitated cheap borrowing for Washington. The dollar accounts for approximately 56% of global reserves, while the euro remains steady in second place at around 20%.

However, the Commission is seizing this opportunity to attract foreign investors and expand its global influence.

“When investors seek to gradually decouple their economies from the dollar due to economic stability, they look to the euro,” the senior EU official noted.

The long-standing taboo surrounding the EU’s joint debt issuance was broken following the pandemic, ending years of resistance from Northern European governments during the euro crisis. As countries like France and Italy realized they were too indebted to manage recent crises alone, Eurobond issuances continued to grow in subsequent years.

For a bloc grappling with the economic fallout of the war in Iran and Trump’s repeated threats to withdraw the US security umbrella from Europe, these fiscal pressures are unlikely to ease. EU leaders are also determined to accelerate the economy to keep pace with the US and China. According to former European Central Bank President Mario Draghi, this is a costly undertaking requiring approximately €800 billion annually.

While investment on that scale remains distant, the Commission—which has become the world’s third-largest AAA-rated bond issuer after Canada and Germany, according to various rating agencies—has indicated it will continue to issue debt in the coming years. The rating for US Treasuries varies by agency between AAA and the slightly lower AA.

Brussels has stated that in its new seven-year budget proposal, effective from 2028, it will utilize Eurobonds to fund the reconstruction of Ukraine, respond to crises, and provide loans for member states to invest in EU priorities.

Nevertheless, frugal Northern nations such as Germany and the Netherlands, which pay lower interest rates by borrowing on their own behalf than through the Commission, oppose further EU common debt in ongoing negotiations. Until a new budget is agreed upon, investors expect the EU executive to maintain its current trajectory. The EU plans to sell €160 billion in Eurobonds this year, a €10 billion increase over 2025.

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Bundeswehr troop figures mask severe structural imbalances

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The German Ministry of Defence has set a series of priority targets for the second half of the year. Led by Boris Pistorius (SPD), the ministerial leadership is satisfied with the government’s draft federal budget, which is scheduled for adoption by the Bundestag at the end of November.

According to a report by the newspaper Welt, the fundamental issue that officials do not openly voice in public is the necessity of converting resources allocated from tax revenues and loans into military capabilities as efficiently as possible, given that disruptions continue to occur in this area.

Regarding new infrastructure construction, the process is generally assessed to be proceeding as planned.

The objective this year is to add approximately 9,000 new bed spaces to barracks, with the initial allocations to these beds having begun in recent days.

Over the next four years, plans envisage incorporating roughly 54,000 additional beds into the system alongside new buildings.

Despite all these areas, personnel continues to be the single largest problem area in the armed forces.

In a statement issued at the beginning of the week, the ministry reported that the number of active-duty soldiers reached 186,700 as of 31 July, marking the highest level in approximately 13 years.

Although this figure falls considerably short of the ultimate target of 260,000 troops to be reached by 2035 at the latest, the ministry argues that the current figure lies “within the projected target corridor for personnel growth”.

This stems from an agreement initially reached with the Bundestag on a relatively slow trajectory of expansion. The planning in question projects an active strength of between 186,000 and 190,000 personnel by the end of the year.

The ministry projects that, “in line with general positive developments in the recruitment process, the Bundeswehr’s personnel growth will maintain its positive trajectory until the end of the year, despite the impact of seasonal fluctuations”.

However, not all observers share this assessment. In a post published on LinkedIn, the former Chief of the German Army, Lieutenant General Alfons Mais, made the following evaluations:

“Looking at these announcements, one could easily get the impression that the constitutional mission of the Bundeswehr is to employ as many people as possible. The key question is: Where does this additional strength, including personnel whose service has been extended, contribute to the defence mission? In administrative posts? In territorial defence? In the reserve elements of operational units? In closing existing personnel gaps in active units? In augmenting new capabilities aimed at NATO planning targets? In Lithuania?”

Pointing out that the issue is not merely one of quantity but of quality—namely deploying the right personnel in the right places—Mais indicates that personnel must not be stationed solely in headquarters, but in artillery battalions, naval surface units, fighter aircraft squadrons, or the electronic warfare domain.

Indeed, the ministry is also aware of the structural problems highlighted by the retired lieutenant general.

Even as politically desired record figures are made public, officials in the Bendlerblock acknowledge that the Bundeswehr’s personnel structure must be returned to a pyramid form to adopt a defence posture suitable for potential crises and wartime situations.

In ministry corridors, there is talk that the military in its current structure has “accumulated too much fat” and that its administrative middle has grown cumbersome.

In the pyramid model considered ideal for the armed forces, generals and staff officers form the apex, while junior enlisted personnel and privates constitute the broad base; officers and non-commissioned officers occupy the space between these two tiers.

A large base combined with a small number of command positions guarantees both a young and physically resilient force and the steady advancement of the most capable personnel to higher ranks through continuous selection.

This model also provides cost efficiency and delivers high mobilisation capacity through personnel who transition into the reserves upon completing their service.

Today, however, the Bundeswehr possesses not only a bloated upper echelon but also a disproportionately broad middle tier, resulting in a cumbersome institutional torso.

The ranks of young enlisted personnel remain insufficient, while older officers are present in surplus. A major who lacks sufficient troops to command produces no military added value; moreover, the prolonged retention of senior personnel prevents the promotion of younger soldiers.

Consequently, defence expenditures are absorbed by high salaries for mid- and senior-level staff rather than being channelled into combat strength, equipment, or the next generation of personnel.

Despite the ministry’s recognition of this dynamic, no concrete transformative steps have yet been taken in practice.

An ageing force with no gain in deterrence

To sustain positive personnel statistics alongside new recruitment, the Pistorius leadership is resorting to “retention measures” aimed at keeping contract and regular personnel in the armed forces beyond the conclusion of their service terms.

Since April, the minister has been sending personalised letters to non-commissioned officers and officers.

Opening with an expression of gratitude for their service, the letters state:

“Your final days in active service coincide with a period of profound upheaval. Our country and our continent face immense challenges. In this process, the Bundeswehr’s mission is becoming even more critical. Personnel growth is therefore our primary focus. This growth can only be achieved with qualified, high-performing, and above all dedicated soldiers—experienced comrades like you. Let us look at your professional future together. Your contribution matters every single day.”

The ministry defends these and similar retention measures solely on the basis of quantitative targets. According to its statement, “targeted individual advisory measures” conducted in 2025 alone prompted thousands of service members across all statuses and branches to extend their terms of service.

Yet this method resonates primarily among older regular personnel. As of the end of July 2026, the strength of regular and contract soldiers rose by approximately 3,000 compared to the previous year, reaching 174,700.

The primary driver of this increase was the rise in regular soldiers, whereas contract personnel numbers recorded a slight decline.

Although 56-year-old regular soldiers whose physical performance may be limited remain necessary due to specialised expertise, this sweeping policy slows the effort to reshape the personnel structure into a pyramid.

As the armed forces age in practice, debate continues over whether this approach converts the military into a more effective and hard-hitting force.

The ministry is also hesitant to publicly disclose the true scale of the personnel shortfall. The gap is not merely the 73,300 soldiers separating the current strength of 186,700 from the 260,000 target.

Regular personnel briefings omit the number of departures from the armed forces—namely the actual requirement for replenishment and replacement.

Over the past three years, an average of 14,000 regular and contract soldiers departed the Bundeswehr annually. According to the ministry’s response to an information request, this figure stood at roughly 14,600 in 2025, with similar numbers expected this year. Conscripts completing their term of service add to these totals.

A ministry spokesperson stated that they could not provide a five-year projection because the data fluctuates continuously and remains highly volatile. However, such an estimate is not difficult to deduce.

Following the suspension of compulsory military service in 2011, then-Defence Minister Thomas de Maiziere (CDU) began tying contract soldiers to extended service terms of 20 to 25 years under the “Personnel Structure Model 185”.

As the service terms of these personnel expire in the coming years, replacement requirements will rise substantially.

Experienced personnel planners agree that approximately 30,000 new recruits must enter the armed forces annually in the future to achieve the targeted growth.

Current figures fall far short of this requirement. The annual net personnel gain stands at only around 3,700 compared to the previous year; furthermore, this expansion risks being eroded by regular attrition rates exceeding 20%. The implementation of the new military service model is also failing to progress at the intended pace.

By the end of July, a total of 378,000 letters were dispatched under the military service questionnaire initiative, including roughly 194,000 to young men and approximately 184,000 to young women.

Roughly 96% of the men, for whom completing the questionnaire was mandatory, fulfilled their obligation. Among women, for whom participation was voluntary, the response rate remained at 4%.

Approximately 2,630 individuals who expressed interest underwent evaluation; following this process, 865 individuals were scheduled for deployment within the Bundeswehr.

This situation underpins retired Lieutenant General Mais’s scepticism toward the defence leadership’s personnel bulletins.

Mais underscored the gravity of the situation: “One cannot conceal qualitative deficits simply by cheering marginal numerical gains!”

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Europe builds drone defence walls along eastern flank against UAVs

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On the night of 20 August, an uncrewed aerial vehicle crashed near the Ukrainian border in Romania, marking the fourth such incident in the country within a single month.

The Romanian Ministry of National Defence announced that the drone, which had entered national airspace, came down in an uninhabited area approximately 4 kilometres north-east of the village of Grindu. On the same day, Moldova’s Ministry of Internal Affairs reported that UAV wreckage had been located one kilometre from the Ukrainian border.

Over the past month, at least six incidents involving airspace violations or crashes of unidentified UAVs have been recorded across Europe, including in Germany, Bulgaria, Latvia, Romania, and Moldova. Several regional states suggested that Russia may have been involved in these occurrences.

Following the crash and detonation of a military drone near the village of Crocmaz, Moldova recalled its ambassador to Moscow for consultations on 10 August.

Moldovan Defence Minister Anatolie Nosatii stated on 12 August that initial data indicated the UAV was of Russian origin, adding that experts were continuing to examine the wreckage.

Russian Foreign Ministry spokeswoman Maria Zakharova rejected the allegations, stating that Moscow does not fly UAVs through the airspace of states neighbouring Ukraine, including Moldova, and does not plan such flight paths.

According to a report by The Wall Street Journal (WSJ), the US administration decided to disband a strike battalion established in Europe in January to advance UAV warfare tactics.

Speaking to the newspaper, an unnamed US Army official said the unit would present its findings to command following large-scale exercises conducted in Germany in August and September, before reverting to its primary combat mission as an airborne infantry battalion.

Incidents involving unidentified UAV violations of European airspace have grown more frequent since the autumn of 2025.

In response to these developments, the European Union began discussing the construction of a collective defence mechanism along NATO’s eastern flank, termed a “drone wall”.

The European Commission presented the concept to the public in October 2025 under its Defence Readiness Roadmap 2030.

The planning envisaged the implementation of two projects: the European Drone Defence Initiative and Eastern Flank Watch.

The first project aims to establish a joint EU-Ukraine Drone Alliance. A €6 billion loan was allocated to fund this initiative under the G7’s Extraordinary Revenue Acceleration (ERA) programme in support of Kyiv.

Under the Eastern Flank Watch project, the EU aims to build a unified European defence system in close coordination with NATO against a broad spectrum of threats, including hybrid operations, Russian “shadow fleet” activities, and the risk of armed attack.

Encompassing multi-layered surveillance systems, anti-drone technologies, electronic warfare assets, and precision strike systems, the project is slated for deployment across all countries along the EU’s eastern border, including land and maritime frontiers with Russia and Belarus. The system is planned to become operational by the end of 2028.

European Commission President Ursula von der Leyen announced on 15 July that an agreement on joint UAV production had been signed between the EU and Ukraine.

“Ukraine has the ingenuity, what it needs is scale. Together we can deliver that, so that Ukraine keeps its edge and Europe reinforces its own strength,” von der Leyen said.

Formally launched two days later, the Drone Alliance was designed as a platform bringing together Ukrainian and European manufacturers of UAVs and countermeasures.

A total of 18 companies joined the initiative, nine from each side. Firms on the European side include ORQA, Indra Group, Fincantieri, and WB Electronics/WB Group.

Europe also deepened its cooperation with the US during this period. According to information reported by the WSJ, the decision to form a specialised battalion within the 173rd Airborne Brigade to study the Ukrainian experience was taken in November 2025.

Under the plan devised by former Chief of Staff of the US Army General Randy George, the concept’s architect, a small group of American soldiers from the approximately 600-strong battalion made covert visits to Kyiv to meet with Ukrainian officials. The unit also conducted joint work with Ukrainian UAV operators at NATO combat training areas.

The decision to end the battalion’s activities was reportedly taken under the influence of Acting Secretary of the Army Christopher Laniwe, who is known for his close ties to US Secretary of Defense Pete Hegseth.

The WSJ previously reported that US troops’ vulnerability to UAVs was exposed during the Combined Resolve exercises held in Germany in April and May, where Ukrainian drone operators detected and simulated strikes against American units and armoured vehicles.

Transatlantic cooperation continues across various channels. At the Industrial Forum in Ankara in July, NATO Secretary General Mark Rutte announced the NATO Drone Edge initiative, aimed at developing UAV systems and counter-drone capabilities.

Alliance members agreed under this framework to allocate more than $40 billion over five years and to quintuple the number of trained UAV operators by the end of 2027.

“We are using the latest innovative technologies, investing in our transatlantic defence industry, and drawing practical lessons from the fighting in Ukraine,” Rutte said.

During the same period, Germany, Denmark, Finland, and Norway signed a letter of intent for the joint procurement of MQ-4C Triton long-range, high-altitude UAVs, developed by Northrop Grumman for the US Navy.

Germany has become one of the most active countries in the field of UAV technologies and defence. In early August, a UAV containing Semtex-type explosives was discovered at Leipzig/Halle Airport near a Ukrainian An-24 transport aircraft believed to be carrying ammunition.

German Interior Minister Alexander Dobrindt stated that his country had become the “target of hybrid warfare” conducted by foreign states, though he did not name a specific country. No further official statements were issued by senior authorities regarding the incident.

The Bild and Die Zeit newspapers reported that DNA traces found on the UAV matched DNA samples from a 2024 arson attack at a DHL freight facility in Leipzig, which German investigators linked to Russian sabotage operations.

Die Zeit also reported that security services were considering the possibility that the operation might have been conducted by Ukraine as a false flag action intended to induce the Berlin government to provide greater support against Russia.

The Russian Embassy in Berlin described the incident as a provocation, stating: “It is obvious that this hastily orchestrated provocation serves solely the objectives of Kyiv and the militarist wing of the European political class.”

Amid these developments, the Drone Defence Technology Centre was officially opened on 18 August at the German Aerospace Centre (DLR) test airfield in Magdeburg-Cochstedt.

The facility aims to combine scientific research, technology, and the requirements of security agencies to accelerate the development of UAV detection and interception systems. The centre houses the mobile anti-drone unit of the Federal Police alongside a joint UAV coordination centre established by federal and state authorities.

Speaking at the opening ceremony, Dobrindt emphasised: “The arms race in the UAV sector requires us to establish our own research units to keep pace with technological developments,” noting that Germany faces daily hybrid attacks from foreign states due to its pivotal role in Europe’s economic and political security.

Up to €10 million is expected to be allocated in the coming years for the development of the centre.

German Defence Minister Boris Pistorius presented the country’s first military strategy document in April. The document noted that Russia would remain the “greatest security threat” to Europe for the foreseeable future.

According to the text, Moscow aims to reshape the European security architecture by weakening NATO. In the section titled “Threat”, the document stated: “Russia is creating the preconditions for a military attack against NATO countries. This is already leading to hybrid operations being conducted against alliance member states, including Germany.”

The Polish government has also accelerated work on its air defence perimeter. Having announced an anti-drone wall project named SAN along its eastern border in January, Warsaw is executing the €3.8 billion project through a consortium comprising state-owned Polska Grupa Zbrojeniowa, Norway’s Kongsberg, and the private Polish firm Advanced Protection Systems.

Polish Deputy Defence Minister Cezary Tomczyk announced that 18 specialised anti-drone air defence batteries—comprising APKWS missile launchers, anti-aircraft artillery, machine guns, and interceptor UAVs—would be deployed, with work scheduled for completion by 2028.

The Baltic Drone Wall initiative, announced in January 2025 by Estonia, Latvia, Lithuania, Poland, and Finland, is likewise targeted for completion by the end of 2026.

Designed to protect the eastern flank of the EU and NATO, the joint project provides for integrating radars, sensors, and interceptor UAVs into a single multi-layered network under centralised management. Participating nations plan to expand the network by the end of the year to ensure uninterrupted surveillance along the Russian border.

Experts from the European Council on Foreign Relations (ECFR) note that while the EU, NATO, and eastern flank states are making intensive efforts to address the UAV threat, the proliferation of initiatives risks causing duplication of effort and uncertainty for commercial entities participating in the projects.

“Greater coordination is needed to ensure coherence across initiatives, particularly at the level of data sharing,” the report stated. It also emphasised that capacity building within the European defence industry against the Russia-derived UAV threat can in no way replace diplomatic, political, and military measures.

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Denmark trains first conscripts in Greenland amid Arctic tensions

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Denmark has begun training its first group of soldiers in Greenland. Following claims over the territory by US President Donald Trump, Denmark has deployed conscripts to Greenland for the first time.

Copenhagen has increased its military presence in Greenland, a semi-autonomous territory within the Kingdom of Denmark, and has now deployed conscripts for the first time to the island’s capital, Nuuk, and the Kangerlussuaq airbase.

Captain Laura, a company commander currently leading the soldiers in Greenland, said: “The current state of the world means we need to become more accustomed to Arctic terrain.”

Greenland became the focal point of transatlantic tensions after US President Donald Trump laid claim to the territory.

Other European nations rushed to Denmark’s aid earlier this year before Trump, who had refused to rule out the possibility of military action, ultimately backed down.

At the height of the crisis, Denmark sent blood bags to Greenland and planned the destruction of the airstrips in Nuuk and Kangerlussuaq in order to slow the advance of a potential adversary as much as possible.

Approximately 300 professional soldiers are currently deployed in the region.

Around 100 soldiers from the Schleswig Foot Regiment will train in Greenland for roughly a month as the first cohort under Denmark’s new 11-month conscription programme, introduced in February 2026.

Defence Minister Jeppe Bruus stated in June that these young service members would be assigned there to “tasks that do not require longer-term specialist training”.

Denmark introduced gender-neutral conscription in the wake of the war in Ukraine that began in 2022.

Replacing the previous four-month programme, young Danes now undergo five months of basic training before serving the remainder of their term in operational assignments, such as deployment to Greenland.

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