Europe's financial "nuclear option": dumping $3 trillion in US debt to counter Trump
Europe currently holds approximately 10% of the total United States national debt, a figure exceeding $3 trillion (approx. €2.56 trillion). As geopolitical tensions rise, this massive financial stake is increasingly viewed as a potential "nuclear option" against unpredictable US policy shifts.
Gold and sovereign debt as leverage
Germany is leading the shift by demanding the repatriation of its gold reserves from New York vaults. Currently, Berlin holds the world’s second-largest gold reserve, with €164 billion (approx. 3,230 billion MDL)—totaling 1,236 tons—stored in the United States.
Financial analysts at Deutsche Bank suggest that Europe’s leverage extends far beyond territorial disputes like Greenland. The US remains structurally dependent on foreign capital to service its obligations, creating a significant strategic vulnerability.
Pension funds initiate the sell-off
Major Nordic institutional investors have already begun reducing their exposure to US Treasuries. Denmark’s AkademikerPension recently announced it would divest 100,000 US bonds by the end of the month, citing political volatility.
Simultaneously, the Swedish pension giant Alecta has liquidated most of its $11 billion US debt holdings over the past year. These moves highlight a growing trend among European surplus economies to reconsider their role in funding the US deficit.
The risks of financial retaliation
Despite the massive leverage, experts warn that a mass sell-off remains a double-edged sword. A sudden collapse in bond prices would devalue the remaining European holdings, effectively impoverishing the lenders.
Furthermore, the US Federal Reserve maintains the capacity to act as a "hostile buyer" to prevent interest rate spikes. Any coordinated European exit would also face immediate retaliation, as US entities hold significant amounts of European sovereign debt.
The China factor and intermediaries
While Europe re-evaluates its position, China remains a critical player with $682 billion in US debt. Recent data suggests that some Chinese investors are masking their activity by purchasing US Treasuries through European intermediaries like Euroclear, based in Belgium and Luxembourg.
The US net international investment position hit a record low of -$26 trillion in 2024. This leaves Washington more dependent than ever on the very allies and rivals currently questioning the stability of the transatlantic alliance.
Translation by Iurie Tataru
