Can Europe sell America?

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0:42The boiling of tensions in Europe over US President Trump and Greenland have subsided to this somewhat uneasy simmer. But Europe is still on edge. Let's start with French President Emmanuel Macron last week on stage at Davos in his aviator sunglasses. The sunglasses are for an eye condition, by the way. Okay, yes, we need to be clear about that. And Mahon talked about the ways Europe could respond to bullying by other countries. Europe has very strong tools now, and we have to use them when we are not respected and when the rules of the game are not respected, by the way. The anti-coercion mechanism is a powerful instrument, and we should not hesitate to deploy it in today's tough environment.

1:26The anti-coercion mechanism, sometimes called the EU's bazooka, This is a legal tool that the European Union could use to economically hit back at a country. Even without the anti-coercion mechanism activated, some in Europe are already changing their behavior. Last week, a Denmark teacher's pension announced it would sell off about$100 million of U.S. government bonds. Down the hall in Davos, where U.S. Treasury Secretary Scott Besant was speaking, he answered a question about this. Denmark's investment in U.S. Treasury bonds, like Denmark itself, is irrelevant. Though the Danish Pension Fund's chief investment officer claimed it wasn't directly because of Greenland friction, the mood is clear to many Europeans.

2:10Sell America. This is The Indicator from Planet Money. I'm Darian Woods. And I'm Waylon Wong. Today on this show, what economic weaponry does Europe have? Europe is moving from friends to frenemies with the U.S. And so the continent is figuring out how to best pack a financial wallop that could lighten Americans' wallets.

2:37There's a lot going on right now. Mounting economic inequality, threats to democracy, environmental disaster, the sour stench of chaos in the air. I'm Brooke Gladstone, host of WNYC's On the Media. want to understand the reasons and the meanings of the narratives that led us here and maybe how to head them off at the pass? That's on the media's specialty. Take a listen wherever you get your podcasts. To walk us through how Europeans are thinking through their financial firepower, we spoke to a Norwegian finance reporter. My name is Robin Wigglesworth and I'm the editor of FT Alphaville, the FT's finance blog.

3:17The Financial Times, the beautiful salmon-colored paper. Salmon, bisque, pink. We've heard many shades over the years. So last week, Robin published an analysis of Europe's financial arsenal. He and his co-author were responding to a research note that came out of Deutsche Bank. Somebody at Deutsche Bank had pointed out how much the U.S. relies on foreigners lending to it. The note described how Europe is America's largest lender. And so The Note pondered why Europe would want to be supporting the U.S. financially when it was being strong-armed around issues like Greenland. We asked Robin his assessment of whether Europe could inflict financial pain on the U.S.

3:56We started with trying to understand exactly what this anti-coession mechanism means. Well, it's essentially sort of measures that can go beyond just trade tariffs. So they can be individual measures on companies, maybe banning access altogether, Like maybe an extremist saying that Amazon can no longer operate in Europe, for example. So that's why they like to call it a bazooka. But of course, you know, the bazooka is only useful if you actually fire it. And that's the question with Europe, whether it has the willingness to really sort of go nuts with the anticoerous measures. It's like a bazooka that has a big ricochet because it would also affect Europeans.

4:34Yes. I mean, the idea behind them is that it should maximize pain on the other side and minimize pain in Europe. But of course, you know, you can't minimize the pain entirely. It has an impact. For example, if you were to, let's say, ban X or Twitter, as you speak, from operating in Europe, you know, Europeans lose service. Then there's obviously the danger of retaliation. With a fairly sort of erratic president in the White House, Europeans are wary of escalating things in a way that, you know, might backfire in a very violent way. So the anti-coercion mechanism can go further than tariffs, but to my ear, Robin seems a little skeptical that Europe's actually going to use it to great effect.

5:19I think that's fair. And that leads us to other ways Europe could squeeze the US. Europe could sell off its US treasury bonds. We asked Robin how big a deal this could be. Well, Europe is an old wealthy continent. We forget this, but it's super rich. And they've saved up a lot of money. They export a lot. So they're invested in bonds and stock markets around the world, but nowhere more so than the United States. Around$3 trillion or so is in the treasury market. So that probably makes Europe the single biggest holder of treasuries in the world, outside of the U.S., of course. Mainland China, by the way, holds less than$700 billion worth of U.S.

6:03treasuries, at least according to the official statistics. That's interesting because historically, sometimes there's been chatter around, you know, could China weaponize its U.S. Treasury holdings? Never really crossed many people's minds that could Europe weaponize its U.S. Treasury holdings, but you're saying it's actually of comparable, if not bigger, size. Yeah, we're through the looking glass here. These are things that we really didn't think we'd need ever to contemplate. But yes, as Europe kind of flails around for ways it can gain leverage in negotiations with the U.S., one of the things that some people have highlighted is this financial vulnerability in the United States.

6:41that the U.S. is constantly dependent on money coming into the country, you know, from Europe and Asia, but especially Europe. So could that be weaponized? So let's look at that as a broader picture. Stocks, bonds, direct investment. Could Europe hurt the U.S. by divesting from the U.S. economy? It could. Robin says it's helpful here to think about divestment that could happen in two separate ways. One, European investors just generally get less enthused about investing in the U.S. More pension plans, insurance companies and so on, private investors think, do I really feel comfortable lending all this money to the U.S.?

7:21Maybe not. Maybe I won't sell. Maybe I'll just stop buying more treasuries. And that could be a problem in itself. The second way Europe could sell America would be a big, dramatic law mandating this. That's kind of the nuclear weapon. I'm skeptical just because it's immensely complicated. These U.S. stocks and bonds aren't owned by the French government or the German government. Mostly it's like private banks in Switzerland, Dutch pension plans, insurance companies in the U.K. You know, it's held in private sector hands, thousands, if not millions of investors. And the only way to get them to forcibly dump American treasuries or American stocks is by, you know, fairly draconian an action of laws and regulations across the European Union.

8:06And that's why it's very complicated. And the danger is, of course, you know, by doing so, you'd be cutting off your nose to spite your face. It would trash the value of these American assets and hurt, of course, European investors in the process. Now, that might be feasible or even worth swallowing if, you know, hostilities keep rising. But right now, I think that's very far-fetched. Mutually assured destruction in Cold War terminology. Basically, yes. So Darian, it sounds like Robin basically poured cold water over the more extreme scenarios that were outlined in that Deutsche Bank note. Yeah, and so Robin found it a little odd when he heard Treasury Secretary Scott Besant lump him in with the Deutsche Bank note later in that Davos talk.

8:52This notion that Europeans would be selling U.S. assets came from a single analyst at Deutsche Bank. Of course, the fake news media, led by the Financial Times, amplified it. Well, it's obviously great to hear that the U.S. Treasury Secretary is reading our articles. But I thought it was a little bit weird for him to call us the fake news media, when in this case, we actually happen to agree with him. Right, because Robin did not think it was a major threat that Europeans would be selling a lot of U.S. Treasuries. The subtitle of Robin Wigglesworth's article was Nipping an Outlandish Idea in the Bud.

9:30Oof. Well, that public dressing down might explain why Deutsche Bank declined to comment to us.

9:40Now, I don't usually make light of people's names, but on your social media, you have. So tell me about your last name. So I am Norwegian. I'm born and raised here in Oslo, Norway, but my father's English and Wigglesworth is an outrageously English name. I mean, even British people think it's a bit weird. It's more British than Britain. Exactly.