The possibility of Europe selling off its U.S. debt holdings has emerged as a potential retaliatory measure amid disagreements over a U.S. push to acquire Greenland. This prospect has sparked debate among economists and political analysts, particularly in light of President Trump's recent policy decisions and their impact on transatlantic relations.
Background: The Greenland Dispute
Tensions escalated when President Trump expressed interest in the U.S. purchasing Greenland, a territory of Denmark. This interest was followed by threats of tariffs on European countries that opposed the acquisition. These countries included Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland. Trump has since ব্যাকpedaled on these tariff threats after reaching a tentative agreement with NATO Secretary General Mark Rutte. The U.S. views Greenland as strategically vital for missile defense and Arctic access.
Europe's U.S. Debt Holdings
European investors hold a substantial amount of U.S. debt. Some of the largest holders include the United Kingdom ($800 billion), Belgium ($399 billion), Luxembourg ($328 billion), Switzerland ($243 billion), and Norway ($218 billion). The EU collectively holds approximately $8 trillion of U.S. Treasuries, which is about 24% of the $34 trillion market.
The Debt as Leverage
The possibility of Europe selling U.S. debt is seen as a "bazooka option" or a form of economic countermeasure. Selling off U.S. Treasuries would increase the cost of borrowing for the U.S. and expose vulnerabilities related to its high debt and public account imbalances. Some analysts believe that the mere suggestion of this action has already caused market ripples.
Why It Might Not Happen
Despite its potential impact, many analysts believe a large-scale sell-off is unlikely. A major reason is that such a move would also hurt the Eurozone. It could trigger a global financial collapse, which no country desires. Daniel McDowell from Syracuse noted that selling off U.S. Treasuries would not be in Europe's economic interest. Most European exposure to U.S. assets is held by private investors, not governments, making coordinated action more difficult.
U.S. Treasury Secretary Scott Bessent dismissed the idea that Europe would retaliate by selling U.S. bonds, calling it illogical.
The Impact of Trump's Policies
Even if European nations don't initiate a massive sell-off as retaliation, Trump's policies are causing investors to lose interest in the dollar and U.S. sovereign bonds. This is due to financial logic rather than political retaliation.
Other Considerations
- Geopolitical Risks: Fitch Ratings has stated that the U.S. tariff threats related to Greenland have increased geopolitical risks in Europe.
- EU Strategic Autonomy: The Greenland episode has highlighted the EU's vulnerability to pressure from the U.S., pushing the EU to pursue "strategic autonomy".
- Market Impact: Trump's hawkish comments on Greenland led to a selloff in the U.S. share markets, and global markets rebounded when he announced a framework deal and withdrew the tariff threat.
- Danish Pension Fund: The Danish pension fund, AkademikerPension, announced plans to sell $100 million in U.S. Treasury bonds due to concerns about U.S. government finances.
- Economic Forecasts: Economic growth in Europe is expected to be modest in 2026, with the Eurozone projected to grow by 1.1%.
While the possibility of Europe selling U.S. debt remains a potential weapon in response to trade disputes and geopolitical tensions, the likelihood of such action is low due to the interconnected nature of the global economy and the potential for self-inflicted damage. However, the tensions surrounding the Greenland issue underscore the fragility of transatlantic relations and the potential for economic repercussions stemming from political disagreements.
