For the brightest promoters of the euro, the currency was not only a leap of faith in European unity, but created a rivalry with the United States and its mighty dollar.
– The dollar is (still) the boss –
But 20 years later, there is no doubt that the dollar still reigns supreme.
When the spread of the coronavirus put an end to the global economy, the value of the dollar surged as investors rushed into the security of the de facto global currency.
More than $ 2.1 trillion is now in circulation and about 60% of foreign exchange reserves stored in central banks are denominated in dollars.
The euro’s share is around 20 percent, according to the European Central Bank.
But even if it does not constitute a direct threat to the hegemony of the greenback, the single European currency has been an honorable runner-up since its entry into circulation on January 1, 2002.
– Bundesbank model –
The single European currency is the child of a painful compromise between France and Germany, with Berlin abandoning its beloved deutschmark in exchange for Paris support for German reunification after the fall of the Berlin Wall.
At first, the rules imposed by the European Central Bank on the euro took on a distinct German character in which stability – and the eradication of inflation – was the only priority.
Making the euro a leading international currency “was perhaps the French point of view, but certainly not that of the German public,” said Guntram Wolff, director of Bruegel, a Brussels-based economic think tank.
âWhen the ECB started to operate, it was very much following the Bundesbank model, which is to say it was fundamentally neutral on this issue,â Wolff said.
In any case, the dream crashed against the rocks of the eurozone debt crisis. On its 10th anniversary, the euro was struggling to survive.
– Trump attack –
The idea of ââpromoting the euro as a tool of power has made a comeback with Donald Trump in the White House.
When Trump abandoned the nuclear deal with Tehran, European companies that had rushed to invest in Iran found themselves under threat of US retaliation.
The EU rushed to put in place a legal workaround to keep European businesses out of Washington’s sights, but the effort failed as businesses shuddered at the cost of defying the United States and the long reach of the US dollar.
Stung, European leaders ordered the European Commission to work on ways to counter this militarization of the dollar.
The January committee presented some ideas, but no legislative proposal.
– Reality hurts –
A European official familiar with the debate said that since Trump left, the issue had lost momentum.
And anyway, “when you talk about the international role of the euro, you’re talking about everything and nothing at the same time,” the official said.
“Everyone agrees with the principle of having a bigger role for the euro in the world, but where disagreements arise is how you get there.”
Most agree that the missing magic ingredient is a safe asset, a euro equivalent to the US Treasury bill which, since World War II, has been the haven for the global investor in stormy markets.
The huge demand for euro-denominated bonds to help pay off the bloc’s massive stimulus fund to rebound from the Covid-19 pandemic has only fueled the argument.
But the creation of a Eurobond equivalent to the American T-Bill has long been a refusal for the richest member states like Germany or the Netherlands who fear to repay loans which benefit France, Spain or the United Kingdom. Greece, a heavily indebted country.
Wolff of the Bruegel Institute said a Eurobond “would definitely help things.” But what would work even better for the euro, he said, is a productive economy.
âIf you have a vibrant economy, international investments will come to Europe and that will strengthen the euro as a currency,â he said.
This story was posted from an agency feed with no text editing.
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