Think of it like a long-term relationship where one partner controls the joint bank account. Europe doesn’t need to drain it to make a point. Just slowing down the deposits sends a very clear message.

A new analysis published on the CEPR VoxEU platform by economists Paola Subacchi and Paul van den Noord lays out the mechanics of Europe’s financial position relative to the United States. The core finding: Europe holds approximately $12.6 trillion in US assets overall, with European NATO countries alone owning about $2.8 trillion in US Treasuries. That figure climbs to $3.3 trillion when Canada is included.

The real leverage, the researchers argue, isn’t in the dramatic scenario of dumping those holdings on the open market. It’s in something quieter and harder to defend against: simply buying less going forward.

The power of showing up less

Here’s the thing about Treasury markets. The US government needs to constantly issue new debt. That means it needs constant buyers. When a major buyer starts showing less enthusiasm at auction, the government has to offer higher yields to attract other bidders. Higher yields mean higher borrowing costs for Uncle Sam.

In English: Europe doesn’t need to sell a single bond to hurt the US fiscal position. It just needs to stop being such an eager customer.

Subacchi and van den Noord make a clear distinction between two kinds of financial pressure. The first is outright liquidation, where a country sells its existing Treasury holdings in bulk. This is the nuclear option. It’s dramatic, destabilizing, and ultimately self-defeating because it tanks the value of the seller’s own remaining portfolio.

The second approach, and the one the researchers identify as Europe’s actual leverage, is marginal demand reduction. Gradually purchasing fewer Treasuries at each new issuance. Redirecting capital toward euro-denominated sovereign debt or other assets. Quietly diversifying without making headlines.

This isn’t hypothetical. There’s a working example already playing out on the global stage.

China wrote the playbook

China has been doing exactly this for over a decade. Its US Treasury holdings have declined from around $1.2 trillion in 2015 to approximately $700 billion by 2026. That’s a reduction of roughly 40%, and yet there was no single dramatic sell-off that crashed the bond market.

Beijing achieved this through slow accumulation of alternative assets and a gradual tapering of new Treasury purchases. The bond market absorbed the shift without a crisis, but the cumulative effect has been significant. China went from being the largest foreign holder of US debt to a notably smaller player, and the US had to find other buyers to fill that gap.

The VoxEU researchers point to this as a template for how Europe could exercise its own financial leverage. Not through a confrontational fire sale, but through a steady reorientation of capital flows that becomes increasingly difficult for the US Treasury to ignore.

The scale of the potential shift is what makes it meaningful. At $2.8 trillion in Treasury holdings for European NATO countries alone, even a modest percentage reduction in future purchases would represent tens of billions of dollars in demand that has to come from somewhere else. And right now, with the US running substantial deficits and needing to finance them through ongoing debt issuance, the timing of any European pullback matters enormously.

The catch: it’s not a button anyone can press

There’s a significant complication that the researchers highlight, and it’s one that both reassures and frustrates anyone hoping for a clean narrative here. The vast majority of European holdings of US assets are owned by private entities, not governments.

Pension funds, insurance companies, asset managers, and banks across Europe hold these positions because they offer attractive risk-adjusted returns. These aren’t strategic geopolitical bets. They’re portfolio allocation decisions made by fiduciaries with obligations to their clients and beneficiaries.

That means a European government can’t simply order its financial sector to stop buying Treasuries. There’s no centralized switch. Any shift in European demand for US debt would need to emerge organically from changing risk assessments, regulatory incentives, or geopolitical developments that make European institutions genuinely prefer alternatives.

This is actually what makes the leverage both real and unpredictable. It can’t be wielded as a precise diplomatic tool, but it can evolve as a consequence of deteriorating transatlantic relations. If European institutions start perceiving greater political risk in US assets, or if European regulators begin nudging capital toward domestic sovereign bonds, the aggregate effect could be substantial even without any coordinated political decision.

Look, the $200 billion leverage figure in isolation is modest compared to the overall $2.8 trillion in holdings. But in the context of marginal Treasury demand at auction, where even small shortfalls force yield concessions, it’s enough to matter. Treasury auctions are won and lost on basis points, and a persistent reduction in European participation would show up clearly in borrowing costs.

What this means for investors

For crypto and broader financial markets, the implications run in a few directions. Rising US Treasury yields, driven by weaker foreign demand, tend to strengthen the dollar in the short term but create headwinds for risk assets including equities and digital assets. Higher government borrowing costs also mean tighter fiscal conditions, which can ripple through everything from infrastructure spending to monetary policy flexibility.

The more interesting second-order effect involves capital reallocation. If European institutions begin shifting away from US Treasuries toward euro-denominated sovereign debt, that could narrow the yield spread between US and European government bonds. A narrower spread would reduce one of the key incentives that has pulled global capital toward dollar-denominated assets for years.

For investors already positioned in digital assets as a hedge against sovereign debt market instability, this research offers a framework for thinking about timeframes. The China example suggests these shifts play out over years, not quarters. But the direction of travel, once established, tends to be persistent.

The wildcard is whether geopolitical tensions between the US and Europe accelerate the timeline. Private investors may not take orders from governments, but they do respond to sanctions risk, regulatory divergence, and currency volatility. If transatlantic relations deteriorate meaningfully, the organic shift away from US Treasuries could accelerate well beyond what any academic model predicts.