Treasury holdings can be Europe's big stick in Greenland dispute - Deutsche Bank

[3D Map of European Union post-Brexit (without UK) with EU blue flag texture and gold stars]
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As the rhetoric between the U.S. and Europe over Greenland heats up, Deutsche Bank says that while the United States possesses significant military and economic strength, it relies heavily on foreign creditors to finance its external deficits.

Europe, as America’s largest lender, holds considerable leverage—European countries own $8T in U.S. bonds (TBT [https://seekingalpha.com/symbol/TBT]) (TLT [https://seekingalpha.com/symbol/TLT]) (SHY [https://seekingalpha.com/symbol/SHY]) (IEF [https://seekingalpha.com/symbol/IEF]) (IEI [https://seekingalpha.com/symbol/IEI]) (BIL [https://seekingalpha.com/symbol/BIL]) and equities (SPY [https://seekingalpha.com/symbol/SPY]) (QQQ [https://seekingalpha.com/symbol/QQQ]) (DIA [https://seekingalpha.com/symbol/DIA]), nearly twice as much as the rest of the world combined.

Deutsche Bank analysts suggest that as the geoeconomic stability of the Western alliance faces existential disruption, European investors may become less willing to maintain their current dollar (DXY [https://seekingalpha.com/symbol/DXY]) exposure. Danish pension funds have already begun repatriating money and reducing their dollar holdings, a trend that could accelerate across the continent following recent developments.

The analysis points to potential European leverage ahead of U.S. midterm elections, noting that the administration is focused on bringing down inflation and Treasury yields -- areas where Europe may have influence.

Key to watch in coming days, according to the bank, is whether the EU decides to activate its anti-coercion instrument (bazooka) by putting measures affecting capital markets on the table. With the U.S. net international investment position at record negative extremes, the mutual interdependence of European-U.S. financial markets has never been higher.

“It is a weaponization of capital rather than trade flows that would by far be the most disruptive to markets,” the analysts conclude.

Europe ETFs; (VGK [https://seekingalpha.com/symbol/VGK]), (EZU [https://seekingalpha.com/symbol/EZU]), (BBEU [https://seekingalpha.com/symbol/BBEU]), (DBEF [https://seekingalpha.com/symbol/DBEF]), (IEUR [https://seekingalpha.com/symbol/IEUR]), (FEZ [https://seekingalpha.com/symbol/FEZ]), (EWU [https://seekingalpha.com/symbol/EWU]), (HEDJ [https://seekingalpha.com/symbol/HEDJ]), (IEV [https://seekingalpha.com/symbol/IEV])

DEAR READERS: We recognize that politics often intersects with the financial news of the day, so we invite you to click here [https://seekingalpha.com/article/4857701-politics-and-the-markets-011826] to join the separate political discussion.

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