Nordic nations harden defenses and payments as Russia threat grows

Denmark and Norway outspent the U.S. on defense as a share of GDP last year

Sweden’s Riksbank spent years worrying about what cashless consumers would do if an emergency such as a Russian cyberattack took down the electrical or communications grid. As of July, Swedish consumers can buy essential goods using their Mastercard and Visa cards without a network connection. The central bank wants to go further by enabling offline purchases with Swish, a local mobile payments system that bypasses the Visa and Mastercard networks altogether.

“What this whole geopolitical situation has brought about is that you need to be redundant in your operations,” Riksbank governor Erik Thedéen said in an interview. “If we look on our payment system, it happens to be that we have two credit cards that are from the same country, the U.S.,” he said. “I think we should keep that in mind.”

The initiative is one visible sign of how quickly Sweden, Denmark, Norway, Finland and Iceland have pivoted. Few countries profited as much from globalization and the end of the Cold War as the Nordics, but Russia now threatens their territory, China threatens their markets, and they no longer count on the U.S. to defend either. In response, the region is sinking more money and manpower into defense, hardening payment systems, supply chains and trade relations, and integrating its economies, defense industries and militaries more tightly with each other and with Europe.

Few NATO members have responded as energetically to President Trump’s demand that allies shoulder more of their own defense. Last year, Denmark and Norway each spent more than the U.S. on defense as a share of GDP, according to the Stockholm International Peace Research Institute. A decade ago they spent a third as much. Sweden and Finland are not far behind. Elections in Denmark in March and Sweden last month produced rare political consensus: parties on the left and right, including far-right anti-immigration parties, backed the military buildup.

The reason is geographic. The Danish Defense Intelligence Service has concluded that after a ceasefire in Ukraine, Russia would be ready for war in the Baltic region within two years, and able to wage large-scale war in Europe within five years, assuming NATO is slow to rearm and the U.S. does not become involved. “People know that, so they know why [rearmament] is so crucial,” said Flemming Mǿller Mortensen, a member of parliament with the Social Democratic Party, which leads the governing coalition.

The change in mindset extends to civilian life. Just as Sweden has made sure payment cards work if the grid goes down, Denmark has asked every household to keep three days’ worth of essentials on hand, including food, water, medicine and a solar or battery-powered radio. “When you have private parties and gatherings, we talk about prepping: ‘Do you prep, do you not prep?’ ” said Mortensen.

Conscription is returning. Sweden reinstated it in 2018 and will call up 9,000 recruits this year, compared with 3,500 in 2018, and is debating lifting the prohibition on conscripts serving outside Sweden. “How do you assess what is the defense of Sweden? It could be in Latvia,” said Vice Admiral Ewa Skoog Haslum, the military’s chief of joint operations. Denmark has made women eligible for conscription and extended conscripts’ service to 11 months from four.

Greg Ip, chief economics commentator for The Wall Street Journal, described President Trump’s commitment to NATO as lukewarm and his efforts to annex Danish-ruled Greenland — shelved under an agreement with Denmark last month — as having woken Danes and Swedes up to their dependence on U.S. technology for security: Patriots for missile defense, Palantir for police and military artificial intelligence, and Microsoft in desktop software. Like much of Europe, Denmark struggles to match Silicon Valley on innovation, and promising startups such as Zendesk and Unity have often moved their headquarters to the U.S.

“The ownership of technologies has become a factor in all conflicts,” said Martin Lidegaard, Denmark’s minister of business and competitiveness. While the U.S. remains Denmark’s most important business partner, “we need to ensure…that we will not be depending on American technologies…We also need to ensure that the U.S. will be able to depend on us,” he said.

Denmark has little defense industry beyond supplying components to weapons platforms such as the F-35 jet fighter. “We didn’t think that it was necessary. That was a big mistake,” said Lars Sandahl Sǿrensen, head of Dansk Industri, Denmark’s main business association. Denmark has taken small steps, such as manufacturing drones for Ukraine with Ukrainian expertise, and Lidegaard plans to unveil a more ambitious strategy for stimulating defense production in coming months. Sweden, which has a substantial defense industry, is pushing joint procurement with European allies and Canada: it is buying frigates from France, while France buys the GlobalEye radar surveillance plane from Sweden’s Saab, and Canada, which makes GlobalEye’s airframe, is weighing a purchase.

Denmark and Sweden punch above their weight globally through multinationals such as Novo Nordisk in weight-loss drugs, Ørsted in wind farms and Lego in toys; and Ericsson in telecommunications equipment and Spotify in music streaming. That concentration leaves them acutely exposed to rising protectionism in the U.S. and competition from China. The U.S. remains their main market, but incremental growth is increasingly expected elsewhere, aided by free trade pacts the European Union has signed. “We can trade with Canada today more easily than with the United States,” said Sǿrensen. “We have heavy investment into Australia now in the green transition.” To pursue opportunities in India, Dansk Industri now has 140 employees in Chennai.

The Nordic countries are also deepening cooperation among themselves. Lidegaard and his Nordic counterparts recently announced a Nordic Growth Alliance to promote cooperation in quantum technology, data centers and space, while reducing red tape.

Elsewhere the transition to a less open, more dangerous world has been costlier: military spending is contributing to the fiscal crisis in France, a trade war with the U.S. has damaged Canada’s economy, and German politics have been convulsed by the rise of a right-wing, Russia-friendly party. Denmark and Sweden are coping better in part because of lessons from economic crisis decades ago. In the early 1990s, Sweden endured bank failures, soaring deficits and unemployment, and interest rates that briefly hit 500%. “Everything that you see that you think is good in Swedish economic policy, is very much a child of the 1990s crisis,” Thedéen said, citing tough deficit rules, an independent central bank and a pension system indexed to lengthening lifespans that make it difficult for politicians to spend freely.

Denmark has recently run surpluses, letting the government offer voters a large cut in electricity taxes. The Danish central bank worries the culture of fiscal rectitude is fading. “The military buildup is a given, and Denmark’s public finances are robust enough that we can actually afford it,” said assistant governor Thomas Harr. “But then we have less money for other things. And that’s what we are trying to communicate.”