Europe Readies Its ‘Bazooka’ Defense Of Greenland

With the US no longer feeling “an obligation to think purely of Peace” and threatening to escalate tariffs, Europe is now weighing whether to wield its defensive economic bazooka to protect Greenland.

Leaders in the European Union are beginning to publicly mull an invocation of the bloc’s Anti-Coercion Instrument (ACI) — a suite of punitive economic tools designed to deter third-party coercion. While the never-before-used tools were designed with China in mind, the US could soon find itself in the so-called economic bazooka’s crosshairs. So just how vulnerable is the US to the EU’s rocket launcher?

Firing Range

In some ways, very vulnerable. European investors are the single-largest foreign holders of US Treasurys and equities by far, with about $8 trillion in assets. That’s nearly double the rest of the world combined, according to a note this weekend from Deutsche Bank’s chief FX strategist, George Saravelos, which pointed out the US net international investment position is at record negative extremes. Theoretically, the threat of a mass sell-off gives the EU leverage — remember how “yippy” bond traders effectively rebuffed tariff rollouts last year? But that strategy would require extreme coordination among public entities and private investors and may amount to an act of mutually assured destruction. A more likely result here may be European investors following the example already set by Pimco earlier this year: a long, slow campaign to “sell America” as a hedge against future instability.

In the meantime, the ACI provides the tools for a much more targeted strike. Endorsed this week by French President Emmanuel Macron, the ACI was signed into law in 2023 and requires the vote of half of member states representing at least 50% of the EU population. Its levies could be a powerful force for deterrence:

• The ACI would enable the bloc to implement export controls, place tariffs on services and restrict access to financial markets. It could also bar foreign firms from public procurement opportunities.
• That places Silicon Valley squarely within the firing range of Europe’s ACI bazooka, with the industry deeply invested in selling its services in the market as well as scoring contracts within the continent’s public digital infrastructure.

It’s a MAD, MAD, World: In not-so-surprising fashion amid the global economic standoff between longtime allies, gold prices jumped on Monday, hitting an all-time high of $4,689 an ounce. Futures for the S&P 500 fell nearly 0.9% as markets were closed in the US for the Monday holiday. That tracks with estimates from analysts at Oxford Economics, who said Monday that a full-on EU-US trade war could trim 1% from US GDP at peak impact, while slowing global GDP growth to its lowest level since 2009. But fret not: Analysts at Evercore said this weekend that it’s the beginning of a “now-familiar ‘escalate-to-deescalate’ cycle” that should culminate in a less-destructive deal. And, of course, all the relevant world leaders are meeting this week at the World Economic Forum in Davos, Switzerland, where the vino at cocktail hour may yield more pointedly worded veritas than usual.