Why is Europe financing the United States?

Since 2012, Europe (the EU-28 or the euro zone) has replaced China as the creditor country financing the United States’ deficits. Why is Europe financing the United States? Europe has a savings surplus, which inevitably has to be lent to the rest of the world and which reflects the presence of precautionary savings and a shortfall of investment projects; This savings surplus is lent to the United States, probably because returns on equities and bonds are higher in the United States than in Europe and attract investors. It remains to be seen whether they are hedged for currency risk; From the late 1990s to 2013, there was a de facto agreement between the United States and China known as “Bretton Woods 2”: the United States had a trade deficit with China that China financed by buying US Treasuries. This agreement was good for both countries: the United States consumed more cheap Chinese products and China produced more. T here is no sign of a “Bretton Woods 3” today between the United States and Europe, since the United States has switched to a mercantilist policy, refusing to have an external deficit with Europe and demanding that Europe buy more US products.