The Euro has demonstrated resilience amidst renewed trade threats from former U.S. President Donald Trump targeting European governments over their opposition to the U.S. annexation of Greenland. Despite the apparent pressure, the currency's stability is attributed to deep-seated capital flows rather than immediate political reactions.
Europe's substantial financial stake in U.S. markets acts as a critical buffer. The region is the largest foreign lender to the United States, with countries across Europe holding approximately $8 trillion in U.S. bonds and equities. This figure nearly doubles the combined holdings of the rest of the world. George Saravelos, Global Head of FX Research at Deutsche Bank, highlighted this dynamic in a client note, explaining that the Euro is supported by this balance of money and leverage, which restrains the fallout from tariff threats.
Saravelos warned of existential strain on the Western Alliance's geoeconomic stability, questioning why Europeans would remain willing to fund U.S. deficits under such conditions. "Developments over the last few days have potential to further encourage dollar rebalancing," he noted, tying market risk to funding dynamics rather than tariffs alone. He identified a key near-term indicator: whether the European Union activates its anti-coercion instrument, a step French President Emmanuel Macron is reportedly planning to request.
The confrontation marks a historic pivot in transatlantic relations. Triggered by Trump's imposition of sweeping tariffs on eight nations in early January 2025 for opposing the Greenland annexation, European strategy has shifted decisively from appeasement to strategic resistance. The Financial Times reported that these tariffs, affecting over €45 billion in annual trade across sectors like automotive and green technology, were seen as crossing a diplomatic red line.
This strategic shift is manifesting in European moves toward trade diversification, defense integration, and regulatory assertiveness. The economic impact extends beyond trade figures, with European Central Bank analysts warning of supply chain disruptions and inflationary pressures. The crisis tests EU cohesion and has broader implications for global order and institutions like NATO and the WTO.
Saravelos emphasized the unprecedented interdependence, stating, "With the U.S. net international investment position at record negative extremes, the mutual inter-dependence of European-U.S. financial markets has never been higher." He concluded that "a weaponization of capital rather than trade flows would by far be the most disruptive to markets."
Parallel data shows a growing international role for the Euro. Chinese companies expanded their use of the Euro in cross-border payments in 2025, with settlements rising 22.8% to 1.18 trillion yuan ($169 billion)—the fastest pace since 2010. Trade between China and the European Union reached $828.1 billion in 2025, up 5.4% year-over-year.
