"Nuclear option"

The US fears a financial hammer that nobody wants

Even Trump's "freedom to act foolishly" has its limits.(Bild: AP/Evan Vucci)

An analysis by a top banker has caused gasps of shock in the US. In a short email, the high-ranking Deutsche Bank employee outlined why Europe is by no means defenseless against the US government. Experts are talking about a "nuclear option."

George Saravelos is a top analyst at Deutsche Bank. Donald Trump's aggressive foreign policy—especially toward allies—has apparently prompted him to run through a few scenarios. "Thoughts on Greenland" was the subject line of a recent internal email that caused consternation in political Washington, according to trade publications.

Europe is the largest US creditor
In just a few paragraphs, Saravelos presented one fact in particular that the US government would like to brush aside: Europe is America's largest creditor. According to the Financial Times, the European NATO countries (together with Canada) are the largest creditors of the US, holding around $3.3 trillion in US government bonds – far more than China.

"In an environment where the geo-economic stability of the Western alliance is under existential threat, it is unclear why Europeans should be willing to take on this role," Saravelos argued in his analysis of the current tense geopolitical situation. The US is "dependent on others paying its bills for large foreign trade deficits," he said.

Saravelos found that even a mere slowdown in new purchases of US financial assets by European investors could already exert considerable pressure on the US without the need for official policy measures. 

Trump threatens "severe countermeasures"
Alarm bells are ringing in Washington. The US even addressed the analysis at the World Economic Forum in Davos – with a preemptive threat. US Treasury Secretary Scott Bessent criticized the study as part of a "false narrative" and called it European hysteria: "I say to everyone: Sit back. Take a deep breath!" he warned urgently against economic retaliation and hasty sell-offs. "Escalating" against the US would be the worst course of action.

"Nuclear option" considered mutually destructive
Officially, however, this option is not even being discussed—only the financial markets are playing out these grim scenarios. In addition, a large portion of US government securities are privately held. A massive or even partial withdrawal of European funds could significantly drive up interest costs for the US. However, such a move would also be devastating for Europe, as it could destabilize the global financial system, weaken the dollar, and increase its own recession risks – which is why the "nuclear option" is considered mutually destructive.

Investors are pulling out of the US market
Nevertheless, Europe seems to be able to build up an effective threat scenario. Numerous investors are reducing their US exposure – mainly due to Trump's mood swings. In this context, there is already talk of a "Sell America" trend on the markets. For example, the announcement by the Danish pension fund AkademikerPension that it intends to divest itself of its US government bonds worth around $100 million by the end of the month caused quite a stir.

On Wednesday, the Swedish pension fund Alecta announced its intention to liquidate its holdings worth around eight billion dollars "due to political risks in the US." Denmark stated that the current US approach had not "made the decision more difficult," but that it had been made independently of the dispute over Greenland. 

Not even Trump is limitless
Although these are small amounts in the overall context, the increased alertness in the US shows that even US President Trump's much-touted "freedom to do as he pleases" has its limits. Especially since the Republican now seems to have backed away from his plans to annex Greenland after Europe—led by French President Emmanuel Macron—threatened to unleash a much-cited "trade bazooka." This would have put even more pressure on the financial markets.

According to Trump, both sides had agreed on an unspecified "framework agreement," which Copenhagen immediately denied. Greenlandic Prime Minister Jens-Frederik Nielsen also expressed surprise on Thursday: "Unfortunately, I don't know what the deal about my country is supposed to be." Nevertheless, the provisional US retreat looks like a European victory in a NATO conflict in which all parties involved have suffered enormous damage.

Polish Prime Minister Donald Tusk said meaningfully on Friday that American leadership of transatlantic alliances is only "accepted" on the basis of mutual trust, shared values, and interests: "Let's not lose that, dear friends."