Citi analyst Charles Armitage warns that escalating U.S.-European tensions over Greenland are straining NATO unity. The dispute, fueled by tariff threats from President Donald Trump against Denmark, raises doubts about transatlantic security guarantees. Armitage suggests the European Union's Article 42.7 mutual defense clause could gain relevance as the alliance's outlook becomes more fragile.

Citi outlined three potential outcomes. The best-case scenario sees increased European defense spending while NATO remains intact, bolstering deterrence. A more likely scenario involves NATO losing credibility as a deterrent, forcing Europe to shoulder a larger share of its own security burden, particularly for vulnerable states like the Baltics.

The third, extreme scenario is a complete NATO breakup, which Citi calls a 'tail risk' that benefits Russia. While not the base case, this possibility cannot be dismissed given high debt and political pressures across Western Europe. Armitage notes that assigning it zero probability underestimates current geopolitical uncertainty.