Tales from the Finance Domain: Bond Markets Are Now Battlefields

Geoff Williams, Charles Dainoff, and myself have a new piece on the Greenland Contingency up at Foreign Policy:

As the Greenland crisis came to a head in the days before Davos, Europeans sought tools that could be reforged as weapons against the Trump administration. On Jan. 18, Deutsche Bank’s global head of foreign exchange research, George Saravelos, warned clients in a note that “Europe owns Greenland, it also owns a lot of [U.S.] treasuries,” and that the EU might escalate the conflict with a “weaponization of capital” by reducing private and public holdings of U.S. debt instruments.

U.S. Treasury Secretary Scott Bessent reported later that week that Deutsche Bank no longer stood behind the analyst’s report, but Saravelos was far from the only financial analyst to discuss the idea. Within days, a few European pension funds eliminated or greatly reduced their holdings of U.S. Treasurys and—perhaps as a result—U.S. language about European strength became considerably less aggressive.

It’s unclear how much of an impact Europe’s moves had on the White House backing off. But it poses a number of questions: Can Europe take advantage of weaponized interdependence to wage financial warfare against the United States? How big are the obstacles in the way, and how much impact can such moves have?

Financial flows and financial policy are instruments of coercive power. There is some evidence of financial flows putting pressure on the United States last year; in the wake of his triumphant declaration of mass tariffs in April, movement away from Treasurys reportedly persuaded President Donald Trump to partly change course.

This is of course built from our most recent book on the subject…

Photo Credit: Laurel Powell https://bsky.app/profile/laurelpowell.net