Europe's Underestimated Weak Spot: Financial Dependence on the US

The European Union Institute for Security Studies has published on its web site the article “Financial dependence on the US: Europe's underestimated weak spot” by Steven Everts describing current transformation of global finances.

China issued dollar-denominated government bonds at the same interest rate as US Treasuries despite its lower credit rating (A+ for China versus AA for the US). Yet demand for Chinese bonds was roughly thirty times the amount on offer. The reason for that is trust.

The bulk of trade among the BRICS countries is settled in local currencies rather than in dollars. Saudi Arabia sells a quarter of its oil to China in yuan instead of dollars. These countries are building a parallel infrastructure, creating alternative payment systems outside SWIFT. Development banks are emerging as substitutes for the IMF and the World Bank. Commodity exchanges are developing where oil, gold, and grain are traded in local currencies.

This is partly a political pushback against ‘the West’, but it is also rational risk management in a world where financial dependence has become a strategic vulnerability.

The US budget deficit is exceeding US$2 trillion a year, or 6.2% of GDP. The US Department of Justice is running an investigation into Jerome Powell, the chair of the Federal Reserve. In so doing, the Trump administration is openly undermining the FRS’s independence. For Europe, this is particularly troubling because its countries are more deeply embedded in the American financial system than the BRICS countries, and the whole system rests on trust.

This uncertainty brings about questions.

What if Donald Trump does to the global financial system what he has already done to the international security order?

What if he discards the rules, undermines institutions and weaponises dependencies?

What if Trump imposes an additional levy on foreign holders of US bonds, under the guise of national necessity?

What if access to dollars becomes politicised?

How much European gold is stored on US soil?

Financial security of Europe is a core condition for being able to decide our own future. The first step Europe must take is to stress-test its financial vulnerabilities. The euro must become more attractive as a reserve and transaction currency.

For years, the EU has sought to build a European Capital Markets Union so that European and international investors have credible alternatives to US markets. Progress has been limited because EU member states resist risk-sharing and cling to national control.

The author believes that a step to EU’s financial independence is issuing an unsecured loan to Ukraine even though getting this loan back will be a major problem. According to Steven Everts, a joint €90 billion loan for Ukraine would be the right move. Both to support Kyiv in the fight against Russia but also as proof of the efficiency of the EU’s strategy. He believes it is good to borrow together in euros to invest in common goals as it strengthens Europe’s financial autonomy.