AILSA CHANG, HOST:
Things are quite tense right now between the U.S. and the European Union. Sources of that tension include the Trump administration's trade policies and its play for Greenland, which, in turn, has led to talk about the EU's anticoercion mechanism, also known as its economic bazooka. Darian Woods and Wailin Wong from The Indicator explain how it works and if it could be used.
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DARIAN WOODS: To walk us through how Europeans are thinking through their financial firepower, we spoke to a Norwegian finance reporter.
ROBIN WIGGLESWORTH: My name is Robin Wigglesworth. And I'm the editor of FT Alphaville, the FT's Finance Blog.
WOODS: The Financial Times, the beautiful salmon-colored paper.
WIGGLESWORTH: Salmon, bisque, pink - we've heard many shades over the years.
WOODS: We asked Robin his assessment of whether Europe could inflict financial pain on the U.S. We started with trying to understand exactly what this anticoercion mechanism means.
WIGGLESWORTH: Well, it's essentially sort of measures that can go beyond just trade tariffs. So they can be individual measures on companies, maybe banning access altogether, like maybe an extremist saying that Amazon can no longer operate in Europe, for example. So that's why they'd like to call it a bazooka. But of course, you know, the bazooka's only useful if you actually fire it.
WOODS: It's like a bazooka that has a big ricochet 'cause it'd also affect Europeans.
WIGGLESWORTH: Yes. I mean, the idea behind them is that it should maximize pain on the other side and minimize pain in Europe. But, of course, you know, you can't minimize the pain entirely. It has an impact. For example, if you were to, let's say, ban X - or Twitter as it used to be called - from operating in Europe, you know, Europeans lose service.
WOODS: He added that there's also the danger of retaliation with, in his words, a fairly erratic president in the White House.
WAILIN WONG: So the anticoercion mechanism can go further than tariffs. But to my ear, Robin seems a little skeptical that Europe's actually going to use it to great effect.
WOODS: I think that's fair. And that leads us to other ways Europe could squeeze the U.S. Like, Europe could sell off its U.S. Treasury bonds. We asked Robin how big a deal this could be.
WIGGLESWORTH: They're invested in bonds and stock markets around the world but nowhere more so than the United States. Around 3 trillion or so is in the Treasury market. So that probably makes Europe the single biggest holder of treasuries in the world, outside of the U.S., of course. The U.S. is constantly dependent on money coming into the country, you know, from Europe and Asia, but especially Europe.
WOODS: We asked Robin if Europe could hurt the U.S. by divesting from the U.S. economy. He said it could but that it's helpful here to think about divestment that could happen in two separate ways. One, European investors just generally get less enthused about investing in the U.S.
WONG: The second way Europe could sell America would be a big, dramatic law mandating this.
WIGGLESWORTH: That kind of the - that's the nuclear weapon. I'm skeptical just because it's immensely complicated. These U.S. stocks and bonds aren't owned by the French government or the German government. Mostly, it's, like, private banks in Switzerland, Dutch pension plans, insurance companies in the U.K. You know, it's held in private sector hands - thousands, if not millions, of investors. And the danger is, of course, you know, by doing so, you'd be cutting off your nose to spite your face. It would trash the value of these American assets and hurt, of course, European investors in the process.
WOODS: Mutually assured destruction, in Cold War terminology.
WIGGLESWORTH: Basically, yes.
WONG: Wailin Wong.
WOODS: Darian Woods, NPR News.
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