Shorting America: Europe’s Financial Leverage over the US

What if Europe flexed its financial muscle? A new report breaks with the prevailing view that the US is an invincible financial superpower, and shows that Europe has more financial leverage over the US than commonly thought, within existing regulatory architecture. If exercised, the consequences for long-run US dollar dominance and transatlantic power relations and the gains for EU strategic autonomy could be significant.

Online launch of the forthcoming Kiel Report “Shorting America: Europe’s Financial Leverage over the United States” by Filippos Petroulakis (Bank of Greece) and Farzad Saidi (University of Bonn, Kiel Institute & CEPR):

• Introduction and moderation: Christoph Trebesch (University of Kiel, Kiel Institute & CEPR)
• Presentation: Farzad Saidi  (University of Bonn, Kiel Institute & CEPR)
• Discussion: Kristy Jansen (USC Marshall, Dutch Central Bank & CEPR) and Nicolas Véron (Bruegel & PIIE)

Followed by open Q&A and moderated discussion

Europe holds $9.6 trillion in US assets, roughly 1.5 times the value of US holdings in Europe. This structural asymmetry has long been underappreciated as a policy instrument. The paper shows how existing regulatory frameworks could, if needed, be deployed to exert pressure on US fiscal financing. It analyses the consequences of removing the preferential capital treatment currently accorded to US Treasuries under both Solvency II and the Capital Requirements Regulation (CRR), arguing that this regulatory subsidy has no remaining macroprudential justification given the US fiscal trajectory—with debt-to-GDP above 120% and projected to deteriorate further, and a sovereign rating that has now lost AAA status from all three major agencies. Removing it would raise the capital cost of holding US Treasuries, generating incentives to divest across the European financial system.

Join us on June 23, 15:00 / 3 p.m. CEST (duration: 60 minutes). A Zoom link will be provided upon registration.