This BBC podcast is supported by ads outside the UK. designer, marketer, logistics manager, all while bringing your vision to life. Shopify helps millions of business sell online. Build fast with templates and AI descriptions and photos, inventory and shipping. Sign up for your one euro per month trial and start selling today at shopify.nl. That's shopify.nl. It's time to see what you can accomplish with Shopify by your side. Hello and thanks for downloading the More or Less podcast, with a programme that looks at the numbers in the news, in life and in global economics. And I'm Tim Harford. Late in January, US President Donald Trump sent shockwaves to European countries as he appeared to seriously consider taking over the island of Greenland, which is an autonomous territory of the Kingdom of Denmark, a NATO ally. At the height of the crisis, many in Europe were trying to think of ways to dissuade President Trump. If a military response was unthinkable and diplomacy wasn't working, perhaps the answer might be financial pressure. Suddenly, people started throwing around some vague plans involving huge numbers, claims about trillions of dollars' worth of U.S. financial assets owned by Europe. The idea was that Europe could threaten to sell those assets, inflicting such pain on the U.S. economy that Trump would change course. European countries hold trillions of stocks and bonds from the U.S. Do you worry that they would start selling those in retaliation? No, if they do, they do. But, you know, if that would happen, there would be a big retaliation on our part. And we have all the cards. President Trump appears to have changed course anyway, but whatever. It all raises a fascinating set of questions. So how many trillions are there and could Europe really use them for leverage? Well, here we're looking pretty narrowly at bonds and stocks. That Toby Nangle a journalist with the Financial Times he been examining the value of American financial assets owned by European NATO members So we forgetting all the real estate and infrastructure projects all that kind of stuff So people who own Microsoft shares or lending money to companies or to the American government, that's all going to be included. Like most developed countries, the United States allows foreigners to buy its financial assets, whether that's shares in American companies or American corporate or government bonds. They're IOUs that guarantee you a fixed return if you lend someone your money and which you can sell on yourself if you want. And the thing is, a big chunk of these US financial assets have indeed been sold to people or institutions outside the US. It's around $12.6 trillion of US assets that held by European NATO countries. Right. $12.6 trillion. I'm going to call it. That sounds like a big number. Is it a big number? It definitely is a big number. Yes. Okay. That's obviously a lot of money, but I don't know whether it's 1% or 10% or 70% of the outstanding universe of financial assets in the US. The market capitalization of all US shares put together right now comes to around about $70 trillion. And if you thought just about US government bonds, that's another $30 trillion. When you also take into account corporate bonds, it looks like roughly 10% of these US financial assets are held by European NATO countries. But what do we mean by held? It's a great question because it's probably more accurate to say that it's held in European NATO countries rather than by the countries, because it's not the government's owning them. These are bonds and shares that are owned by private individuals who reside in these countries or people who live outside of these countries that just happen to hold these securities through either custodians or asset managers based in these countries. Just because $12.6 trillion of shares and bonds are held in Europe, that doesn't mean they're owned by Europeans. So that $12.6 trillion has got a lot of noise in it. Deutsche Bank have done some analysis and they estimate that maybe when we strip out things like the Chinese government's ownership of US bonds through Luxembourg and Belgium, that sort of stuff, everything drops down to around about $8 trillion. Now, we haven't done independent work, but I would have thought that Deutsche Bank would have done a reasonable job at that So it looks likely that a good chunk of that trillion figure isn't within the control of Europe, although it's hard to be precise. But whether the number is $8 trillion or $12.5 trillion, why does it matter that Europe owns US financial assets? Shares and bonds are the building blocks of financial systems. So owning American shares or bonds gives you influence over a country's finances. If you own them, you can choose to, well, not own them anymore. Selling enough of them would drive down the price. If foreign investors sold vast numbers of shares, it would damage the US stock market and the wealth of the US as a whole. And government bonds are arguably even more important. If you sell those, that has two effects at the same time. It both drives down the price of bonds and raises the interest rate that a government has to pay when issuing new bonds. That makes it more expensive for governments to borrow money, which the US does a lot of. And if you sold trillions of dollars worth of bonds, you could cause some serious pain. You've got $30 trillion of US government bonds. So how much of those US government bonds are held in Europe? So again, held in Europe is the right question. And the answer, according to the US Federal Reserve, that's the US Central Bank, is around $2.8 trillion of that $30 trillion. It's about 10%. That's right. Again, that number doesn't strip out the bonds held in Europe on behalf of non-European investors. So it could be somewhat lower. Nevertheless, in theory, Europe could sell off its US bonds and create havoc. In theory. Could they do it? Because they don't personally own many of these assets. Absolutely right. Apart from the Norwegian government in their big oil fund, they've got a chunk. Apart from that, there aren't huge ownership positions directly from government to government. The overwhelming majority of bonds aren't owned by governments, they're held by private institutions such as insurance companies, banks or pension funds, and of course individual investors too. Forcing them to sell would be a logistical nightmare. But even if you could organise a big sell-off, it would come at a cost for Europe. Many European pension funds have invested heavily in US assets And if they suddenly worth much less then Europeans will have a lot less in their pension pots than they thought And that not all So one consequence of US bond prices falling is that actually that tends to push other bond prices around the world, other countries down as well. One of the things that happens when bond prices go down is that bond yields go up. That's like another way of saying interest costs. And so So interest costs for governments around the world and also for households, for companies, they could also be pushed up by any real sell-off in the US bond market. So Europe tries to give the US administration a bloody nose and suddenly we're all paying more for our mortgages and for our credit cards. That's right. I guess we'd be headbutting them and both coming out pretty bloody. There's a paradox underlying this whole discussion. The US is almost unique in the scale of how many of its assets are held outside America. But is this a massive vulnerability or is it a source of influence? I think that it's probably best to talk about it as a statement of fact. It's about the degree of integration there is, how much our fates are bound together financially. But the interdependence is real, despite the fact that both sides of the transatlantic relationship seem to be feeling rather uneasy about this interdependence. It's not a thing that's easily going to go away. I completely agree with that. Our thanks to Toby Nangle from the Financial Times. If you have any questions or comments, please get in touch at more or less at bbc.co.uk. We'll be back next time. And until then, goodbye. Starting a business can be overwhelming. You're juggling multiple roles, designer, marketer, logistics manager, all while bringing your vision to life. Shopify helps millions of business sell online. Build fast with templates and AI descriptions and photos, inventory and shipping. Sign up for your one euro per month trial and start selling today at shopify.nl. That's shopify.nl. It's time to see what you can accomplish with Shopify by your side. We'll be gettin' on Friday. on your NEDELANDSE TV.
