The year 2025 was marked by the greatest transformation of the global geopolitical order since the early 1990s, when the Cold War ended with the dissolution of the Warsaw Pact and the disintegration of the Soviet Union, and the process of globalization deepened. This deepening was based on a world order in which the United States, as the dominant power, guaranteed stability within a rules-based system whose architecture was designed in the aftermath of World War II. In 2025, the United States under the Trump administration became an isolationist and imperialist power, showing no respect for national or international law, human rights, or its historical allies. It is a power that renounces the architecture it built and led for 75 years, acting according to the whims and (im)morality of its President. Trump likely went too far in threatening military action against Greenland, a territory that, while enjoying special autonomy, belongs to Denmark, a NATO member and historical ally of the U.S. I say “too far” because the U.S. military leadership will not attack an allied country without Congressional authorization, which holds the constitutional authority to declare war and peace. Congress will not grant such authorization. Nevertheless, Trump may, as is his habit, stretch the limits of the law and his power as far as possible and exploit existing permissions to deploy troops and maintain a military presence in Greenland, doing so aggressively and disrespectfully rather than collaboratively.
The breach of trust caused by these threats is so severe that irreparable damage to the Atlantic alliance has already occurred. Geopolitical risk levels are at historic highs, and China has acted as the adult in the room, the only power capable of dealing with Trump firmly, which is the only way to handle a bully. However, despite this dangerous context and the perception of high risk, global economies continue to grow at a solid pace, and stock markets are at record levels in most countries, fueled by optimistic expectations of profit growth and falling interest rates. The market rally appears set to continue. There is a widespread sense of FOMO (fear of missing out) regarding rising stock prices. This contrast between the dangerous reality of the world and the optimistic reality of the markets resembles the “eye of the hurricane” – a benign moment of apparent calm before the arrival of cyclonic winds. A sign that things are not well is the sharp rise in 2025 of precious metals – gold, silver, platinum, which reflects central banks’ desire to diversify reserves into safe-haven assets other than the U.S. dollar.
The global economic system is adjusting to this new world order. These economic adjustments tend to be slow but inexorable: market diversification, reconfiguration of value chains to address uncertainty, and focus on controlling strategic activities within secure economic blocs. In the future, economic transactions will increasingly occur within each bloc, driven by inter-bloc tariffs, uncertainty, and declining trust. This will happen more quickly in areas of strategic procurement, particularly transactions related to security, defense, and digital services.
Beyond the economy, the global financial system must also adjust to a world fragmenting into blocs, without trust and without an established legal order. To complicate matters, financial adjustments can be very rapid, generating sudden crises and profound shifts in value. What can be expected for 2026? One point of tension is the structural imbalance of the U.S. economy. With a current account deficit of 4 percent, a public deficit of 6 percent, and a boom in digital investment, the U.S. economy needs to attract financing equivalent to more than 10 percent of GDP. With public debt already at 125 percent of GDP, can it attract additional capital without a substantial increase in interest rates in a context of widespread loss of confidence in the markets and the U.S. government? Probably not. The alternative is to maintain low interest rates and issue more currency through the Federal Reserve’s purchase of Treasury securities. This monetarization would likely generate inflation and undermine confidence in the U.S. dollar (the feared “dollar debasement”), but it may be the strategy pursued by the Trump administration if it can control Federal Reserve policy.
Complicating the U.S. situation further, Trump announced that in 2027 he would request a 50 percent increase in defense spending, equivalent to an additional $500 billion. Are America’s rivals, such as China, and even its aggrieved European allies, willing to finance Trump’s military adventures, which could easily backfire on them? And do they want to hold assets in the currency of a country that ignores rules and laws and acts solely in its own interest, with the power and will to enforce it unilaterally? This does not seem a sensible policy for any sovereign investor. Consequently, 2026 is likely to see a continued reduction in the purchase of U.S. Treasury securities by central banks worldwide as part of ongoing efforts to diversify safe-haven assets, which has driven the progressive rise in precious metals and an additional premium for U.S. debt issuance.
Another more structural challenge is the “bloc-ification” of the financial system into three major influence ecosystems: the American system, the European system (which will attempt to separate from the U.S. system while bringing along liberal democracies), and the Chinese system, which has been establishing itself as an alternative supported by the BRICS. This bloc-ification means that money will tend to circulate within each bloc rather than between blocs, and transactions will be conducted in the bloc’s currency, not solely in U.S. dollars. It will also entail a progressive disengagement of European payments from platforms managed by American companies such as VISA and Mastercard, ensuring the integrity and independence of the SWIFT system for international transfers. In these financial “decoupling” strategies, the operationalization of a central bank–managed digital euro will be an essential instrument to achieve autonomy.
Another aspect of this financial bloc-ification is the conversion of savings within a bloc into investments within that bloc rather than across blocs. Today, much of European bloc savings are channeled into American bloc assets and investments, which in the current geostrategic context poses a serious problem for Europe. This has sparked the current discussion on incentivizing European savings, particularly pension savings, which have long-term horizons suitable for Europe’s strategic investments in defense, security, and competitiveness. This discussion comes late, but bold proposals for European pension savings accounts with attractive tax benefits are crucial to encourage citizens to keep their money at home rather than in rival blocs. Farewell to globalization. We are entering the era of bloc-ification.
Filipe Santos, Dean of CATÓLICA-LISBON