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European countries have a major edge as they consider counter-measures against U.S. President Donald Trump’s proposed tariffs in his push to acquire Greenland: their huge holdings in U.S. assets, Deutsche Bank analysts say. George Saravelos, global head of FX research at the German bank, said the continent remains the U.S.’ biggest lender, with European countries holding some $8 trillion of U.S. bonds and equities — almost double the rest of the world combined. If geopolitical tensions escalate into a full-blown trade war , it will reverberate across capital markets, he added. Danish pension funds were among the first investors to withdraw capital and slash their dollar holdings a year ago. A fresh transatlantic trade war over Greenland could prompt a further flight of Europe’s institutional allocators from the U.S., according to Saravelos. “For all its military and economic strength, the U.S. has one key weakness: it relies on others to pay its bills via large external deficits,” he wrote in a note issued Sunday, the day after Trump announced 10% tariffs on eight European countries from Feb. 1. “With USD exposure still very elevated across Europe, developments over the last few days have potential to further encourage dollar rebalancing.” Saravelos said any impact on the euro from the trade threats “will not be as negative as might be feared.” US10Y YTD mountain U.S. 10-Year Treasurys. The White House wants to impose the tariffs on Denmark, France, Germany, the U.K., Norway, Sweden, the Netherlands and Finland after the NATO countries resisted President Trump’s push to absorb Greenland into the U.S. Though the charges would start at 10%, they would increase to 25% on June 1 if the countries do not acquiesce to Trump’s demands. But rather than import levies and transatlantic trade flows, investors should instead look to the potentially wide-ranging ramifications across capital markets, Saravelos said. France is reportedly considering the use of the EU’s Anti-Coercion Instrument (ACI) — the so-called “nuclear option” which would hit U.S. companies with curbs and restrictions on imports, exports, market access and other limits. EUR= YTD mountain EUR/USD. The Deutsche Bank note said that this could hand the bloc considerable leverage as the Trump administration tries to cut inflation and bring down treasury yields ahead of the U.S. midterm elections in November. “From our perspective the key thing to watch over the next few days will be whether the EU decides to activate its anti-coercion instrument by putting measures that impact capital markets on the table,” Saravelos added. “With the US net international investment position at record negative extremes, the mutual inter-dependence of European-U.S. financial markets has never been higher. It is a weaponization of capital rather than trade flows that would by far be the most disruptive to markets.”