2026-01-28 06:12:00
Former European Commission President José Manuel Barroso recently claimed that relations between Europe and the United States are at their lowest point since NATO’s founding.
It’s hard to disagree, especially in light of former President Donald Trump’s recent remarks, such as that “Europe was created to harm the United States” and that the U.S. has “never needed” its NATO allies. Add to that last year’s 15% tariffs on EU goods and the recent U.S. interest in claiming parts, if not all, of Greenland.
Against this backdrop, theories have begun to emerge about how Europe might respond.
The tool often mentioned is the Anti-Coercion Instrument, also known as the “trade bazooka.” In its most aggressive form, it could severely restrict U.S. companies’ access to the EU’s 450-million-consumer market — a move that could cost them billions of dollars, with inevitable repercussions for the S&P 500, Treasury yields, and the EUR/USD pair, while potentially benefiting gold.
That said, the instrument is far from a quick trigger. Activating it would take up to six months, making it more of a strategic threat than an immediate weapon. More importantly, its purpose is deterrence, not escalation. If actually deployed, U.S. retaliation would be likely — for example, through restrictions on LNG exports to Europe, which could reignite an energy crisis and hit European industry and growth hard.
Another theory is that Europe could begin selling its U.S. asset holdings.
Europe does hold trillions of dollars in U.S. Treasuries, corporate bonds, and stocks. In theory, a coordinated sell-off could push up U.S. borrowing costs, weaken markets, and stir more volatility in the dollar — even sending EUR/USD higher. The problem is that most of these assets are in private hands, so forcing a sale would hurt Europe just as much. Capital controls or restrictions would only make that damage worse.
In short, Europe has the tools to cause pain to the U.S., thereby putting pressure on the U.S. debt and stock markets. But using them would be costly for Europe itself. That’s why Brussels is far more likely to try every diplomatic option before turning economic leverage into open confrontation.
On the other hand, Europe might not need to do anything. Markets could react on their own to worsening U.S.–Europe relations and to countries moving away from dollar assets, potentially forcing the president into another “TACO”.
