Photographer: Geert Vanden Wijngaert / Bloomberg
Photographer: Geert Vanden Wijngaert / Bloomberg
The European Union wants to boost its position in the global economic scenario, strengthening the international role of the euro, which aims to erode the dominance of the US dollar and isolate the block of financial risks, including American sanctions.
In a plan presented on Tuesday, the European Commission, the EU’s executive arm, described how the region can strengthen its economic and financial resilience by supporting the architecture of the single currency and through growing markets such as green financing.
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Calls to increase the bloc’s autonomy gained momentum after the US imposed sanctions on Iran that would also punish European banks, companies and people doing business with the Islamic republic. The commission’s plan reflects the growing pressure from member states for the EU to adopt tools that will enable it to pursue its foreign policy goals with fewer resources to an unpredictable US ally.
The United States’ ability to impose international sanctions because of the dollar’s power “has seriously affected the ability of the EU and its member states to promote foreign policy objectives,” the commission said in its strategy paper. The Washington policy sometimes “compromised the legitimate trade and investments of EU companies”.
Volatile Ally
The initiative to boost the role of the euro was first put on the EU’s agenda by former European Commission President Jean-Claude Juncker, who, faced with an erratic partner in Washington, called for measures to protect the region’s economies and currencies volatility in other parts of the country. the world. It was during Juncker’s 2018 term that President Donald Trump pulled the U.S. out of the international agreement that restricted Iran’s nuclear program and imposed sanctions.
The USA also paralyzed one of Europe’s energy infrastructure projects, Nord Stream 2, for threatening companies with sanctions. The American measures are seen as a way to boost exports of liquefied natural gas from the United States to Europe and, at the same time, to keep the fuel moving through Eastern European countries that do not use the euro but are friends of Washington.
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“Strengthening the international role of the euro can protect our economy and financial system from currency shocks, reduce dependence on other currencies and ensure lower transaction, hedge and financing costs for EU companies,” said EU chief economist Paolo Gentiloni, told reporters in Brussels.
According to the European Central Bank, the euro remains the second most used currency in the world, behind the dollar. But despite the most recent pressure, there is little the EU can do in terms of policies or legislative initiatives to significantly increase the use of its currency.
The EU’s main concern will be the completion of flagship projects that better unify its banking sector and capital markets. These initiatives have come to a halt, however, often due to entrenched disagreements between governments.
Sustainable Finance
However, the EU believes that its historic recovery fund, designed to help countries recover from the pandemic-induced recession, could help support the euro. The stimulus package will provide 750 billion euros ($ 905 billion) in grants and loans, raised by jointly supported debt, while a third of those funds will have to be spent on green projects.
“Promoting sustainable finance is an opportunity to develop the EU’s financial markets into a global ‘green finance’ hub, reinforcing the euro as the standard currency for the designation of sustainable financial products,” says the plan.
In 2019, almost half of all global green bond issues, including those originating outside the bloc, were denominated in euros, according to the EU executive branch, and that number is expected to increase as the commission is about to issue more 250 billion euros in green debt as of this year. The bonds are intended to finance the EU’s recovery plan.
The plan would see the commission raise almost a trillion euros in debt by 2026, making it one of the largest sovereign issuers in the world with a stellar credit rating. In parallel, “the Commission will continue to support the development of euro-denominated commodity derivatives for energy and raw materials and will facilitate the emergence of euro-based benchmarks indexes and trading venues covering key sectors, including nascent energy markets, such as hydrogen. “
Digital Push
Another game-changing event in this area is the ECB’s push for the introduction of the digital euro, the newspaper said. “The development of the European digital financial sector will reinforce the EU’s open strategic autonomy in financial services and the ability to protect the EU’s financial stability and values.”
Brexit is also putting pressure on the EU to strengthen its financial infrastructure. The commission intensified the pressure on companies to transfer parts of their London derivatives clearing business into the EU. He will create a working group to assess possible technical issues that could represent an obstacle in this regard, he said.
“We need a clear, step-by-step master plan that helps major financial sector companies UK for the European Union, ”said Markus Ferber, legislator of the European Parliament. “A mere ‘wait and see’ approach will not help in European financial markets.”
– With the help of Alexander Weber and Paul Gordon
(Updates with official plan announcement)