The European Union yesterday unveiled plans to challenge the US dollar’s dependence in global markets by strengthening the international role of the Euro, with the longer term view of ‘de-dollarising’ the world economy. At the launch, Pierre Moscovici, the EU economic affairs commissioner believed ‘A wider use of the euro in the global economy yields important potential for better protecting European citizens and companies against external shocks and making the international finance and monetary system more resilient’.
There are various reasons that the EU would like to see the euro counter the dollar, including being able to run a more independent foreign policy that would have less exposure to USD sanctions around the world. This would help the EU maintain its end of the bargain with the Iranian nuclear deal after the US threatened to sanction banks, companies and even individual directors that continued to have trade links with Iran after the Trump administration pulled the plug on its end of the contract (Recently Russia and China have also reaffirmed their commitment to the nuclear deal). Other proposed measures include using the Euro in energy contracts between EU member states and third-party suppliers, along with having a crude oil price benchmark denominated in euros. This would go hand in hand with the planned full range of trustworthy interest rate benchmarks, plus the possibility to further develop the euro in FX markets.
However, there were words of warning that the proposals, although good with intent, face major obstacles. In a guide published to coincide with the plans, the Centre for European Reform (CER), while acknowledging that the Trump administration was ‘weaponising economic policy’ warns that there would be resistance to the plans from both inside and outside the EU. The CER cautioned ‘The ambition to give the euro a greater role in global markets faces huge economic and political obstacles. Not only is the dollar’s role in the world economy deeply entrenched, the policy changes that would bring about the conditions necessary for growing the euro’s role – an ample supply of European safe assets and a European Central Bank (ECB) that recognises its worldwide responsibilities – would meet fierce resistance, especially in Berlin. Likewise, the consequences of increased global demand for the euro would challenge some of the Eurozone’s core policies’.