Greenland Crisis: 'Sell America' is a long game for the Europeans

No sooner had Deutsche Bank AG currency strategist George Saravelos raised the possibility of Europeans selling some of their $8 trillion of US assets because of Donald Trump’s threats toward Greenland, a pile-on began. US Treasury Secretary Scott Bessent was bothered enough to take time out to argue why this was wishful thinking.

But after the Americans initiated a swift climbdown on Greenland at Davos — no invasion or tariffs on disobedient Europeans — I wouldn’t be so dismissive. Perhaps Europe has some leverage after all.

Also Read | Europe has the weapons for Trump’s Greenland tariff war


Trump’s attempt to bully allies into submitting to his territorial demands won’t be forgotten. As Christine Lagarde, the European Central Bank president, told CNN , it should be “a wakeup call” for the bloc to decide what it needs to do “to be strong by ourselves.” She’d been forced to endure the tariff-loving US Commerce Secretary Howard Lutnick at a Davos dinner before leaving early.

Lagarde is right. Europe has no option but to try to make sure more of the continents’ vast savings are invested at home. This is easier said than done, of course. It’s hard for even the most patriotic portfolio manager to ignore the dynamism of the US economy, its tech giants and the depth of its capital markets. But that’s no excuse for inaction: Trust in Trump’s US has been severely damaged this week.

One way to build the euro zone’s financial muscle is to embrace more joint borrowing, thereby creating a safe-asset to rival US Treasuries. The taboo on this has already been broken during the Covid pandemic.

At the height of the Greenland crisis, Bessent poured scorn on any emerging “sell America” narrative, comparing it to the panic markets experienced after Trump’s “Liberation Day” tariffs last year. As on that occasion, he urged Europe not to retaliate.

Also Read | EU Parliament freezes US trade deal over Trump’s Greenland push and tariff threats

But the comparison was telling, and US insouciance and outright mockery of European allies belied a real vulnerability: The US is the world’s largest debtor nation, relying on the “kindness of strangers,” including Europeans, to fund its budget and current account deficits. A sharp bond market sell-off last year and the accompanying rise in US borrowing costs persuaded Trump to delay his extreme tariff proposals, and spawned the so-called TACO trade — Trump Always Chickens Out.

Those betting on TACO appear to have been proven right again, with Trump dropping his Greenland-inspired tariff threats after just a couple of days of market volatility. The reason for U-turn remains unclear, and no one knows when this president will change his mind again.

The Danish pension fund AkademikerPension promising to exit its $100 million of US Treasuries won’t have triggered Trump’s climbdown — it’s a drop in the $30 Trillion Treasury market ocean. But signaling matters, and the president was possibly unwilling to find out if others would follow suit.

Trump remains angry at Europe for not buying enough US goods, but he ignores the flipside of the US trade deficit: Europe has become a massive exporter of capital to the US. Roughly €300 billion ($351 billion) of European savings flow out of the bloc annually, primarily to America. This helps pays for factories, inflates the value of the Magnificent Seven and funds the US budget deficit. It lets the nation consume more than it produces while suppressing its borrowing costs — the essence of the US’s Exorbitant Privilege.

Also Read |Trump's European threats could make it harder for future US leaders to repair ties

Notwithstanding periodic bouts of volatility, European investors have profited from exporting capital. US stocks have generated superior returns since the global banking crisis, and the country’s debt comes with juicier yields. European financial institutions also rely on Treasuries as a safe asset, source of liquidity and collateral in their lending activities.

“Diversifying away from America is impossible,” UBS Group AG boss Sergio Ermotti told Bloomberg Television this week, noting the US’s superior growth and innovation.

Yet with Trump undermining NATO and openly disparaging European allies, it’s counterproductive for the bloc to keep exporting so much of its savings to the US. The money could be better put to work at home to increase prosperity and innovation, and to fund European rearmament.

Fortunately, European pension funds don’t need politicians to tell them that too much US exposure might be a bad idea right now. Trump is undermining the independence of the Federal Reserve and paying little heed to fiscal responsibility. Confidence in US institutions and the idea of Treasuries and US dollars as safe havens are being undermined

The chief investment officer of bond giant Pimco, Dan Ivascyn, told the Financial Times last week that Trump’s unpredictable policies have prompted it to diversify away from US assets — a process that will take several years.

But if international investors are to do the same, they’ll need something else to buy. Germany’s massive military and infrastructure spending will increase the supply of bunds in coming years, while helping Europe close its trade surplus and stem capital outflows. Yet the continent lacks a large enough pool of safe assets to rival US Treasuries. That impairs the euro’s role as an alternative reserve currency to the dollar.

Boosting investment via joint borrowing was a key recommendation of former ECB president Mario Draghi’s 2024 report on European competitiveness. There have been some steps in this direction — including €90 billion of joint debt issuance to support Ukraine. Nevertheless, the continent has long been divided on common bonds because of worries from frugal countries like Germany about fiscal profligacy by others.

But bigger fears are at play today. Just as the continent needs to rearm, it also needs to better integrate its fragmented capital markets.

Trump’s Greenland provocation won’t be the last. A safe asset to compete with Treasuries can help give Europe the financial power and autonomy to go toe-to-toe with the Americans. That would help dissuade the bullies.