The United States’ geopolitical balancing act over Greenland has significantly improved its economic ties with the EU. European powers are wondering what instruments they have to combat US belligerence, including the “nuclear option” of relieving the US debt.

The tone changed after: supposed “framework of agreement” in Davos, and American ambitions to take over Greenland have cooled down for now. However, EU heads of state continue to prepare possible responses to further escalation.

One of the options was to cut off access to American markets through the so-called “trade bazooka”. If launched, it will cut off US companies from the EU market, costing them billions. Another option is to offload trillions of dollars of US assets held in Europe.

However, questions remain about its feasibility, as dumping could drastically change the global economic landscape. This could also have a knock-on effect on the U.S. financial system’s exposure to stablecoins.

Can the EU actually shed US debt?

Before January 21, European leaders considered possible responses. While Denmark deployed special forces in Greenland, other heads of state suggested a trade bazooka that would prevent the US from accessing EU markets.

Others, including former Dutch Defense Minister Dick Berlin, have suggested that Europe could apply U.S. debt as financial leverage. Berlin he said“If Europe decides to offload these bonds, it will create a big problem in the US. [The dollar] failures, high inflation. This will not go down well with U.S. voters.”

George Saravelos, chief currency strategist at Deutsche Bank, he wrote in a memo last weekend: “For all its military and economic strength, the United States has one key weakness: its reliance on others to pay its bills through large external deficits.”

Saravelos said the United States currently holds $8 trillion in U.S. bonds and stocks, “twice as much as the rest of the world combined.”

But can Europe actually repay this debt? There are questions both about how the EU can force the sale and, in an increasingly de-dollarized world, who the potential buyers are.

Yesha Yadav, a law professor and associate dean at Vanderbilt University, told Cointelegraph: “Foreign government buyers are typically wary, which means they won’t easily transfer their holdings unless there is a serious need.”

Moreover, according to the Financial Times, much of the United States’ debt in Europe is not held by governments alone, but by private entities such as pension funds, banks and other institutional investors. Yadav noted that hedge funds from the UK, Luxembourg and Belgium have become the main buyers of US Treasuries.

Therefore, even if European powers wanted to get rid of American debt, they would have to force private buyers to sell. Yadav said it “doesn’t seem likely that European governments will be able to impose restrictions on hedge funds buying U.S. Treasuries in the near term.”

SocGen Chief Currency Strategist, Kit Juckes, he wrote“Things probably have to get a little worse before political reasons damage their investment performance.”

However, “they could potentially think about making available as collateral the types of public debt that are considered the safest,” Yadav said.

The main problem is that there are not many alternatives to US debt as a risk-free investment. Treasury securities still boast “risk-free” status and are generally highly liquid.

“Even as other very stable and safe countries like Germany begin to issue debt, their debt markets remain relatively small, so it is very difficult to imagine that they will ever replace the U.S. Treasury market,” Yadav said.

There are also few potential buyers. Yadav noted that China is limiting the pace of its purchases of US debt.

Asian buyers cannot absorb so many American assets. The market capitalization of the MSCI All-Country Asian Index, which tracks huge and mid-cap stocks in developing and emerging markets in Asia, is approximately $13.5 trillion. According to the Financial Times, the FTSE global government bond index is approximately $7.3 trillion.

Rabobank analysts he wrote“While the large U.S. current account deficit suggests that there is theoretical potential for a decline in the dollar in the event of a massive withdrawal of international savers from U.S. assets, the sheer size of U.S. capital markets suggests that such an exit may not be feasible given the constraints on alternative markets.”

Stablecoins are becoming the main buyers of US debt

One of the emerging major buyers of US debt is stablecoin issuers.

Under the GENIUS Act, the landmark U.S. legislation that creates the framework for stablecoins, issuers of these assets operating in the country must have dollars and U.S. treasury bonds on reserve to back their coins.

“This [stablecoin issuers] growing as fast as they are now means their need for treasuries is correspondingly high. To the extent this trend continues, it represents a huge benefit to U.S. policymakers, but also deepens the link between the continuity of stablecoin issuers and the ability of U.S. treasury bond markets to continue to maintain liquidity and popularity,” Yadav said.

Related: Senate Passes GENIUS Stablecoin Act Amid Concerns Over Systemic Risk

The growing number of stablecoin issuers as buyers of US debt is not without risk. This, coupled with fewer buyers of US debt, particularly if the EU dumps or even significantly reduces its exposure, could spell trouble for US treasury markets.

Yadav and Brendan Malone, who previously worked in the Payments and Settlement Division at the Federal Reserve Board, have already noted liquidity shocks in U.S. debt markets in both March 2020 and April 2025.

In the event of a run on stablecoin issuers, this lack of liquidity and the increasing lack of counterparties to sell to may prevent the issuer from selling its securities. It would become insolvent and would significantly impact the credibility of U.S. Treasury markets.

Economic and military escalation in an increasingly multipolar world has caused divisions between former allies. While there is hope for dialogue between the EU and the US, Latvian President Edgars Rinkēvičs he said“We’re not out of the woods yet [..] Are we dealing with an irreversible split? NO. But there is a clear and present danger. The threat looms not only to the sovereignty of Europe and Greenland, but also to US debt markets.

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