At the start of 2026, a dramatic three-way geopolitical struggle unfolded globally. On January 15th, at a New Year's reception for business leaders in Halle, German Chancellor Friedrich Merz reversed his previous hardline stance towards Russia, publicly declaring that "Russia is a European country" and expressing his hope that the EU would restore a "balanced relationship" with its "largest European neighbor," Russia, provided that "peace prevails and freedom is guaranteed." On the same day, Russian President Vladimir Putin received ambassadors from several countries, including Germany, France, and Italy, at the Kremlin, adopting a more conciliatory tone and stating that Russia was "ready at any time" to restore diplomatic relations with Europe to pre-war levels.



Meanwhile, using Greenland as leverage, US President Trump announced on Truth Social that starting February 1, punitive tariffs of 10% would be imposed on eight countries—Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands, and Finland—and would rise to 25% on June 1 unless a "complete and thorough" agreement to purchase Greenland was reached. This was not an isolated shift in rhetoric, but rather a butterfly effect triggered by the "Greenland crisis."

This article argues that the détente between Europe and Russia is not "true love," but rather a survival test and realistic adjustment by Europe (especially Germany) under the dual pressure of the US and Russia and internal predicaments. Although this "drama" has an element of performance, Germany's motivation is deeper and more real, and may initiate a structural shift toward "New Eastern Policy 2.0".

I. The Butterfly Effect: A Realistic Exploration from Greenland to Berlin

The epicenter of this storm is Greenland. The Trump administration has transformed what began as a political joke—"buying Greenland"—into a "hybrid war" in 2026 geopolitics: he not only emphasizes national security needs but also threatens to use tariffs, and possibly even adjust NATO commitments, in exchange for control of the territory. On January 17, Trump tweeted on Truth Social, "If we don't take Greenland, Russia or China will," accusing Denmark of being unable to protect the island from Chinese and Russian influence. This statement triggered a strong reaction from Europe: Danish Prime Minister Mette Frederiksen called it a "blatant violation of sovereignty," and EU leader Ursula von der Leyen stated that she would "firmly defend the sovereignty of Greenland and the Kingdom of Denmark." A joint statement from the eight EU member states warned that Trump's tariffs would lead to a "dangerous downward spiral" and has deployed a small military unit to Greenland for "Arctic Endurance Operations" exercises to demonstrate solidarity.

For Denmark and the EU behind it, this is not just a matter of territorial sovereignty, but a trampling on the last vestige of dignity of the European continent. Merz's "divergent thinking" emerges in this context: he realizes that if the United States is no longer a reliable protector, but rather a predator, then Germany must restart its "New Eastern Policy." Merz's statement that "Russia is a European country" is essentially sending an extremely dangerous signal to Washington: "If the United States pushes too hard, Europe can look eastward for safe space." These remarks were made in Halle, East Germany (where AfD support is high), but Merz emphasized, "I'm not saying this just because I'm here (East Germany), I would say this anywhere in Germany," showing that this was not a temporary performance, but a genuine response to the energy crisis and economic pressures.

POLITICO Europe points out that Merz's reference to Russia as "our largest European neighbor" and his call for a "balanced relationship" under the premise of a peace agreement can be seen as a signal of a "softening" stance towards Russia. Furthermore, his parallel with similar calls from Macron and Meloni suggests this is a collective backlash from Europe against pressure from Trump.

Some argue that Merz joins Meloni and Macron in calling for a resumption of engagement with Putin, emphasizing that this is a pragmatic response by Germany to the energy crisis and industrial decline.

II. Putin's olive branch: Is it thawing or differentiation?

At the credentials presentation ceremony on January 15, Putin received several ambassadors, including those from Germany, France, and Italy, displaying the most humility and mildness in four years. He emphasized, "We hope that the situation will change over time, and our country will return to normal, constructive dialogue," and reiterated his commitment to a multipolar world, while criticizing NATO's eastward expansion for neglecting Russia's security and interests.

Analysts believe that Russia does not genuinely want to embrace a heavily armed Europe, but rather uses this "engagement" to divide the US-EU alliance and alleviate internal stagflation pressures (GDP growth of only 1.8% by 2025). However, this olive branch comes with conditions: it must "respect national interests and legitimate security concerns," implying that the Ukraine issue needs to be resolved on Russian terms.

III. The US Response: Trump's Tariff Threat and the "Alliance with Russia to Contain Europe"

In response to European countries' resistance to Greenland's sovereignty and military deployments, the White House announced punitive tariffs of 10%-25% on eight countries, calling them "playing a very dangerous game." Washington's current strategy is "transactional diplomacy." In Trump's eyes, if Europe does not cooperate with the US's strategy in the Arctic and towards China, Europe is "a worse ally than a competitor." The US may be trying to reach an agreement with Putin that "bypasses Europe." This fear is the fundamental driving force behind Mertz's initial olive branch to Putin—Europe does not want to become a menu item on a major power's table.

On January 18, permanent representatives of the 27 EU member states held an emergency meeting and summit in Brussels to discuss countermeasures, including potential €9.3 billion in retaliatory tariffs or the activation of "anti-coercion tools" to restrict US access to the EU market.

IV. Major Currency Market Volatility: The Overstretched Credit of the US Dollar and the Euro's "Lifeline"

Geopolitical tensions have directly impacted the foreign exchange market. The euro/dollar pair fluctuated around 1.16 on January 19 (last traded in the 1.1617-1.1625 range, with a low of 1.1577 and a high of 1.16915 last week), reflecting the market's digestion of the negative impact of the trade war and risk aversion.

US Dollar: A Hedging Force Between Safe-Haven Sentiment and Long-Term Credit

The tariff war triggered a return of safe-haven funds to the United States, causing the dollar index to surge in the short term (exceeding 105 in early January 2025). As European countries (including Danish pension funds) begin reducing their holdings of US Treasury bonds and decreasing their dollar exposure, the dollar's status as the world's only safe-haven asset is being weakened. If EU-Russia trade resumes and local currency settlements are attempted, the dollar will face systemic capital flight. Open confrontation among allies exacerbates credit overdrafts, and the dollar may depreciate by 5-10% in 2026.

Euro: A Strategic Reassessment After Growing Pains

The euro is currently fluctuating around 1.16, with the market digesting the negative impact of the trade war (EU exports to the US account for about 3% of GDP). If Merz's probing can secure the return of cheap energy (natural gas prices could drop by 20%), German industry will regain its strength, and the euro is expected to rebound above 1.20 in the second half of 2026.

Conversely, if the test fails and the Eurozone faces comprehensive US sanctions, it will face a crisis of disintegration. Technically, a break below 1.1580 (200-day moving average) could test 1.1500; however, a break above the 1.1620-1.1635 resistance level would turn bullish.

V. Conclusion: This was merely a high-risk "political game."

The current détente between Europe and Russia is very likely just a performance for the US—Europe is not ready to fully return to Russia's embrace, and Putin has never truly trusted Berlin. However, Germany's probing is driven by real predicaments: energy security, economic recovery, the backlash from unreliable US allies, long-term pressure from Ukraine, internal political stability, monetary autonomy, and adaptation to a multipolar world. These intertwined factors make Merz's assertion that "Russia is a European country" more like the beginning of a structural shift than pure performance. This "show" is enough to shake up the post-World War II transatlantic order.

We are entering a fragmented world. The absolute hegemony of the dollar is coming to an end, and the fate of the euro is no longer in the hands of Brussels, but between the ice of Greenland and the trenches of Ukraine.

Investors should pay attention to a potential Trump-Putin deal: this could ease the conflict in Ukraine, but strengthen the "alliance with Russia to contain Europe" and further weaken the euro.