Markets usually see geopolitical change before politics admits it. The US Treasury market is doing so now. Washington is turning old advantages – dollar centrality, institutional credibility, policy predictability and market depth – into sources of risk premium. Across the Treasury maturity spectrum, investors are demanding higher yields to lend to the government, while recent auctions reveal increasingly selective demand for its debt. Treasuries are losing the safety premium that once kept borrowing costs down, and the National Bureau of Economic Research estimates that rising supply has already eroded about one-third of that privilege’s aggregate benefit.
Higher yields matter first because they raise the cost of financing the US government. Net interest already approaches $1tn a year, absorbing almost one-fifth of federal revenues and now exceeding defence spending. The US has crossed the Ferguson limit: when a great power spends more servicing its debt than defending itself, it finances its own decline. The Congressional Budget Office projects that interest bill to more than double to $2.1tn by 2036 – roughly a quarter of projected revenues – and describes the fiscal trajectory as unsustainable. As an ever-larger stock of debt is refinanced at higher rates, the cycle becomes self-reinforcing: rising interest costs widen deficits, larger deficits require more issuance and greater supply puts further pressure on yields.
Higher Treasury yields also matter beyond Washington. A sharp rise in yields can reduce the value of Treasuries pledged as collateral, triggering margin calls and forced sales that amplify stress in repurchase agreement markets. Because the Treasury curve serves as a benchmark for much of global credit, a repricing of US debt can also tighten borrowing conditions in Europe and elsewhere.
However, the structural conclusion for Europe does not depend on how far the Treasury repricing will ultimately run. America’s share of global economic output has been declining for decades as more economies mature and economic weight spreads more widely. In this environment, continued European dependence on US financial hegemony is becoming a self-inflicted vulnerability.
Europe needs the financial architecture capable of mobilising its savings, absorbing shocks and converting economic scale into power. That architecture rests on three foundations: an integrated financial operating system; a euro-based capital-market and safe-asset architecture; and a wider economic and monetary perimeter.
Integrated financial operating system
Europe’s market infrastructure still operates across national silos, from trading and settlement to collateral, tax and securities servicing. At the end of 2024, EU securities were traded on 314 trading venues. The European Central Securities Depositories Association represents 42 national and international central securities depositories across 37 European countries. More revealingly, even within Target2-Securities, around 96% of transactions by both volume and value were still settled within the same individual CSD in 2025. This is market-infrastructure fragmentation in operational form.
CSDs sit at the intersection of settlement, securities law, sovereign issuance, collateral and investor rights. Governments therefore treat them as critical national financial infrastructure, helping to explain the political resistance to cross-border consolidation. Withholding tax creates a similar constraint. Tax rates can remain national, but relief procedures, ownership identification, documentation and data standards should be handled through common European processes and infrastructure. That would reduce cross-border friction and costs while improving automation, transparency and resilience across the single market.
The same contradiction appears in banking. The Banking Union has Europeanised supervision and resolution, yet the market itself remains fragmented along national lines. Only around 16% of euro-area corporate lending is cross-border, while capital and liquidity still face barriers within banking groups. These national faultlines become even more visible when banks seek to consolidate across borders. UniCredit’s moves on Commerzbank and Banco BPM show how quickly Europe’s search for scale collides with national safeguards. Concerns over governance, headquarters, employment, domestic lending and critical infrastructure are legitimate.
A common, enforceable European commitment framework should protect those interests while enabling cross-border consolidation. Otherwise, every serious attempt to build European banks at global scale will remain caught in a sovereignty trap.
Euro-based capital-market and safe-asset architecture
Around €300bn of EU savings flows abroad in net terms each year, mainly to the US, in part because Europe still lacks sufficient scale, liquidity and exit opportunities at home. The task is to make Europe investable at the scale its ambitions require.
The safe-asset question sits at the centre of that task. Around €800bn of EU bonds are outstanding. Secondary-market turnover reached €1.5tn in the second half of 2025, roughly €12bn per trading day. The US Treasury market operates on a different scale: about $31.8tn outstanding and $1.2tn traded each day.
The dollar still accounts for around 57% of official foreign-exchange reserves, compared with about 20% for the euro. That ‘exorbitant privilege’ gives Washington additional sustainable debt capacity equivalent to around 22% of gross domestic product. Research from the Federal Reserve Bank of New York estimates that Treasuries’ safety, liquidity and usefulness as collateral have lowered US borrowing costs by around $70bn a year since 2020. Sustained over decades, that advantage compounds into real economic strength and geopolitical leverage.
Europe should therefore make the creation of a deep and liquid common bond market a priority, an objective that goes beyond integrating its fragmented national capital markets to broaden investment opportunities and facilitate cross-border liquidity. The depth of a Treasury-like European safe asset depends on sufficiently large benchmark issues, concentrated liquidity and sustained secondary-market turnover, allowing substantial quantities to be traded with limited price impact.
Common issuance should finance shared European needs – defence, energy, artificial intelligence, space, critical infrastructure and resilience – whose scale and strategic importance exceed the capacity of fragmented national funding, with investment decisions guided by demonstrable additionality and expected economic or strategic returns. Such borrowing would create new European obligations without mutualising existing national sovereign debt.
To attract sustained market demand, issuance must be regular, predictable and supported by developed repo and derivatives markets, underpinned by credible repayment arrangements, clear fiscal accountability and a sound legal framework incorporating the lessons learned from Next Generation EU.
Europe’s wider economic and monetary perimeter
Europe’s financial architecture cannot end at the boundaries of the euro area or even the EU. Add the UK, Switzerland, Norway, Iceland and Liechtenstein to the EU and Europe’s wider economic perimeter reaches just over $29tn at market exchange rates, compared with roughly $32tn for the US. In purchasing-power terms, the case is sharper still: the EU alone is close to the US, at around $31tn versus $32tn, while the wider European perimeter reaches roughly $37tn. The task is to translate that economic mass into commensurate monetary weight and establish the euro as a credible alternative to the dollar.
While a deep and liquid common bond market would provide the core of that ambition, the euro would gain further weight through deeper internal integration and stronger external financial integration. Within the EU, Sweden remains outside the euro and bears the costs of a separate currency, while its formal monetary autonomy is significantly constrained by close ties to euro-area rates, capital flows and exchange-rate movements. For Denmark, the contradiction is even clearer: the krone is already pegged to the euro, leaving monetary policy effectively tied to the European Central Bank.
The same fragmentation extends beyond the EU. London is Europe’s deepest capital-market centre, Switzerland one of its most important financial hubs and Norway, Iceland and Liechtenstein are deeply integrated through the European Economic Area. Yet Britain is discovering the costs of its new distance, Switzerland the limits of transactional ‘gold-bar diplomacy’, while the EEA exposes the sovereignty paradox of deep integration without formal rule-making power. As economic and financial power becomes an instrument of geopolitical leverage, these half-architectures carry an increasing strategic cost. A Europe serious about financial power needs to give its closest neighbours a durable place within its economic, financial and strategic architecture.
Sweden and Finland’s accession to Nato showed how quickly positions once considered immovable can shift when the strategic environment changes. Europe’s financial order now faces a similar test. In an emerging multipolar world, economic and financial power is becoming more contested. A loss of confidence in US Treasuries would accelerate that shift. Europe’s vulnerability is that national safeguards driven by short-term political self-interest can obstruct precisely the integration that would make its countries stronger. If Europe fails, it will leave more scope for Washington, Moscow and Beijing to shape the rules, norms and values of the emerging multipolar world.
The call to action is therefore concrete: integrate Europe’s financial infrastructure, build a deeper common bond market and widen its economic and monetary perimeter. Move from debate to deliberation, from national reflex to European construction.
John Kersten is a senior banking and capital markets practitioner and former Managing Director of Commerzbank.
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