European stock markets ended Friday in the red, extending weekly losses as investors digested rising geopolitical risks and mixed economic signals. Concerns around a potential diplomatic rift involving Greenland and the future of NATO overshadowed otherwise steady macroeconomic data from Germany.
Germany’s DAX slipped 0.3%, France’s CAC 40 dropped 0.7%, while the UK’s FTSE 100 edged down 0.1%, reflecting cautious sentiment across the region.
Greenland dispute raises NATO and credit rating concerns
Market anxiety was fuelled by unresolved tensions between the United States and Denmark over Greenland. A high-level meeting involving US, Danish and Greenlandic officials failed to deliver consensus, with Danish Prime Minister Mette Frederiksen confirming a “fundamental disagreement” remains after President Donald Trump reiterated that the US “needs” Greenland.
Frederiksen warned that prolonged conflict over the Arctic territory could threaten NATO’s unity, a statement that unsettled markets already sensitive to global security risks. The possibility of a weakened defence alliance prompted warnings from credit rating agencies.
Fitch’s head of sovereign ratings, James Longsdon, said European countries could face one-notch credit rating downgrades if NATO cohesion deteriorates. He noted that proximity to Russia would be a key factor, with nations closer to the eastern border viewed as more vulnerable to geopolitical shocks.
In response to the standoff, several European countries including Germany, France, Norway and Sweden have reportedly deployed troops to Greenland, signalling political backing for Denmark and raising the stakes of the dispute.
Inflation cools in Germany as oil prices rebound
On the economic front, data showed German consumer prices were unchanged in December, with annual inflation at 1.8%, below the European Central Bank’s 2.0% target. The reading reinforced expectations that inflation pressures are easing across the euro zone.
The ECB has held interest rates steady since concluding its rate-cut cycle in June and has signalled it is in no rush to adjust policy again, citing resilient economic growth and stabilising prices. The central bank’s next policy meeting is scheduled for early February.
Sector-wise, European semiconductor stocks remained in focus after strong earnings from Taiwan Semiconductor Manufacturing highlighted sustained demand from the AI sector. Shares of ASML, ASM International and BE Semiconductor continued to attract attention following sharp gains in the previous session.
Meanwhile, oil prices rebounded after earlier losses. Brent crude rose 1.2% to $64.54 a barrel, while US WTI climbed 1.3% to $59.93. Prices recovered as fears of immediate US military action against Iran eased, though both benchmarks were still on track to end the week largely flat after recent volatility.
Overall, European markets closed the week under pressure, balancing cooling inflation against escalating geopolitical uncertainty that continues to cloud the outlook for investors.
