Photographer: Geert Vanden Wijngaert / Bloomberg
Photographer: Geert Vanden Wijngaert / Bloomberg
The European Union wants to strengthen its position in the global economic stage by strengthening the international role of the euro because it wants to defend the dominance of the US dollar and isolate the block of financial risks, including US sanctions.
In a blueprint presented on Tuesday, the European Commission, the EU’s executive, outlined how the region can strengthen its economic and financial resilience by strengthening the architecture of the currency and by growing markets such as green finance.
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Calls to promote bloc autonomy gained steam after US introduction sanctions against Iran that will also punish European banks, companies and people doing business with the Islamic Republic. The commission’s plan reflects increasing pressure from EU member states to use instruments that will enable it to pursue its foreign policy objectives with less use of an unpredictable US ally.
The US’s ability to apply international sanctions due to the power of the dollar has severely affected the ability of the EU and its member states to advance foreign policy objectives, ‘the commission said in its strategy paper. The policies pursued in Washington have sometimes ‘jeopardized the legal trade and investment of EU companies’.
Volatile ally
The initiative to strengthen the role of the euro was first placed on the EU agenda by Jean-Claude Juncker, former president of the European Commission, who confronted a volatile partner in Washington to take steps to economies and currencies of the region against volatility elsewhere in the world. It was during Juncker’s term, in 2018, that President Donald Trump withdrew the US from the international agreement that restricted Iran’s nuclear program and reintroduced the sanctions.
The US has also paralyzed one of Europe’s signing projects for energy infrastructure, Nord Stream 2, by threaten businesses with sanctions. The US measures are seen as a way to boost the export of liquefied natural gas to America, while also maintaining the transportation of fuel through Eastern European countries that do not use the euro but are friendly with Washington .
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“Strengthening the international role of the euro can protect our economy and financial system from foreign exchange shocks, reduce dependence on other currencies and ensure lower transaction, hedging and financing costs for EU companies,” said Paolo Gentiloni, chief executive. of the EU economy, told reporters in Brussels.
According to the European Central Bank, the euro remains the second most widely used currency in the world behind the dollar. But despite the latest pressure, there is little the EU can do in terms of policies or legislative initiatives to promote the meaningful use of its currency.
The main focus for the EU will be to complete flagship projects that will better unite the banking sector and capital market. However, these initiatives have stalled, often due to entrenched differences of opinion between governments.
Sustainable finance
Yet the EU believes its landmark recovery fund, designed to help countries recover from the pandemic-induced recession, can support the euro. The stimulus package provides 750 billion euros ($ 905 billion) in grants and loans, raised through jointly supported debt, while a third of these funds must be spent on green projects.
“The promotion of sustainable finance is an opportunity to develop the EU financial markets into a global ‘green finance’ hub, strengthening the euro as the standard currency for the designation of sustainable financial products,” the plan said.
According to the EU’s executive, almost half of all world issues, including those outside the bloc, are in euros, according to the EU’s executive, and are expected to rise as the commission is ready to make more than 250 billion euros. in green debt starting this year. The securities are intended to fund the EU’s recovery plan.
The plan would cost the commission almost a trillion euros in debt by 2026, making it one of the largest sovereign issuers in the world with an excellent credit rating. In parallel, ‘the Commission will further support the development of commodity-derived instruments for energy and raw materials and facilitate the emergence of benchmarks in euro indexes and trading venues that cover core sectors, including emerging energy markets, such as hydrogen. ”
Digital printing
Another development that could also prove a game changer in the area is the ECB’s quest to introduce a digital euro, the newspaper said. “Further development of the European digital finance sector will strengthen the EU’s open strategic autonomy in financial services and its 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 pressure on companies to move parts of their derivatives cleaning industry from London to the EU. He will set up a working group to assess possible technical issues that may be an obstacle in this regard.
‘We need a clear, step-by-step master plan that will help the most important companies in the financial sector to United Kingdom to the European Union, ”said Markus Ferber, a lawmaker in the European Parliament. “A mere wait-and-see approach does not help European financial markets.”
– Assisted by Alexander Weber and Paul Gordon
(Updates with the official announcement of the plan)