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By Jochen Andritzky\/Brussels<\/p>\n<\/div>\n
US President Donald Trump is using economic warfare to pursue his foreign-policy objectives. In August, his administration announced that it would double tariffs on steel and aluminium imports from Turkey, in order to pressure the Turkish authorities to release an American pastor detained for two years on espionage charges. At the beginning of next month, the United States will also ratchet up unilateral sanctions against Iran.
\nThe Trump administration knows that a key source of US economic leverage is the dollar\u2019s role as the world\u2019s dominant reserve currency. Countering America\u2019s disproportionate power to destabilise the global economy thus requires reducing the share of international trade conducted in dollars. Can the euro serve as a credible alternative?
\nThe euro is the world\u2019s second-leading currency, but it still lags far behind the US dollar. Two-thirds of all loans issued by local banks in foreign currencies are denominated in dollars, compared to just 20% in euros. Similar proportions apply to global foreign-exchange reserves.
\nEuropean Commission President Jean-Claude Juncker is eager to change this. Last month, he declared it \u201cabsurd\u201d that \u201cEurope pays for 80% of its energy import bill \u2013 worth \u20ac300bn a year \u2013 in US dollars,\u201d even though only about 2% of the EU\u2019s energy imports come from the US. He then called for the euro to become \u201cthe instrument of a new, more sovereign Europe,\u201d and promised to \u201cpresent initiatives to strengthen the international role of the euro.\u201d
\nJuncker is not alone among European leaders in recognising how powerful a tool the single currency can be when it comes to projecting power. German Foreign Minister Heiko Maas has proposed that the European Union establish its own international payments system.
\nBut these proposals, while ambitious, may overlook what is really needed to elevate the euro\u2019s status. If the euro\u2019s role in international trade increased, so would foreign companies\u2019 holdings of euro-denominated assets and the total volume of euro-denominated loans. More global trade in euros could lead foreign banking systems to become heavily exposed to the currency.
\nThat means that, in the event of a crisis, the European Central Bank would have to take action, much as the US Federal Reserve has done in the past. During the 2008 global financial crisis, the Fed served as de facto global lender of last resort, agreeing to unsecured swap lines not only with reserve-currency central banks like the ECB and the Swiss National Bank, but also with emerging economies like Mexico and Brazil. The goal was to stabilise the global economy, but the liquidity also helped to prevent domestic disturbances from foreign sales of dollar assets and to stop foreign banks from scrambling to buy dollars.
\nThe ECB adopted a much more restrictive approach. In late 2008, it began to provide euros to the central banks of Hungary, Latvia, and Poland, but required them to put up euro-denominated securities as collateral. The ECB wanted to guard its balance sheet against unsecured exposure to Hungarian forint or Polish z?oty. But these countries held too few eligible securities to obtain enough euros under the ECB\u2019s initial terms. It took another year for the ECB, under pressure from Austria and other countries, to establish proper swap lines against foreign-currency collateral with the Hungarian and Polish central banks.
\nEven now, the ECB will provide euro liquidity only to countries considered systemically relevant for the eurozone. This risk-averse approach contrasts with that of the Fed and, more tellingly, with that of the People\u2019s Bank of China, which in recent years has established an extensive network of swap lines to promote the renminbi\u2019s use in trade \u2013 and thus its standing as an international currency.
\nIf Juncker\u2019s vision is to be realised, the ECB will have to abandon this parochial mindset and adopt a Fed-style role as international lender of last resort. Yet it remains unclear whether the ECB actually would be willing to leave part of its balance sheet exposed to the fate of non-eurozone countries.
\nThe ECB has good reason to be cautious: it lacks a political counterpart akin to the Fed\u2019s US Treasury Secretary. With no eurozone finance minister with whom to coordinate in times of crisis, a decision by the ECB to help third countries \u2013 even EU countries \u2013 could be met with strong resistance. The ECB\u2019s reluctance to establish a swap line with Hungary may be a case in point: Hungary was already distancing itself from the EU.
\nEventually, the ECB did resolve to do \u201cwhatever it takes\u201d to save the euro. But if European leaders want to advance Juncker\u2019s vision of strengthening EU sovereignty by boosting the euro\u2019s international role, they cannot rely on the ECB to repeat that approach, without proper institutional support.
\nInstead, eurozone leaders should complete the reforms of the currency union\u2019s architecture and provide a political counterpart to the ECB that would support centralised monetary policy. This is the best initial response to Trump\u2019s economic attacks. Anything else would be putting the cart before the horse \u2013 yet again. – Project Syndicate<\/p>\n
l<\/strong>\u00a0Jochen Andritzky, a former secretary-general of the German Council of Economic Experts, is a visiting fellow at Bruegel, a Brussels-based think tank.<\/p>\n","protected":false},"excerpt":{"rendered":" By Jochen Andritzky\/Brussels US President Donald Trump is using economic warfare to pursue his foreign-policy objectives. In August, his administration announced that it would double tariffs on steel and aluminium imports from…<\/p>\n","protected":false},"author":1,"featured_media":1801,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[46,57,90,96,107,137,139,160,174,184,201,202,209,232,233,244,246,249,256,267,277,279,288],"class_list":["post-1800","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized","tag-aramco","tag-baroudi","tag-democracy","tag-doha","tag-embargo","tag-gas","tag-gazprom","tag-international-maritime-disputes","tag-lebanon","tag-maritime-disputes","tag-offshore","tag-oil","tag-opec","tag-putin","tag-qatar","tag-rosneft","tag-roudi","tag-russia","tag-saudi","tag-straddling-hydrocarbons-reserves","tag-total","tag-trump","tag-usa"],"_links":{"self":[{"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/posts\/1800","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1800"}],"version-history":[{"count":0,"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/posts\/1800\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/media\/1801"}],"wp:attachment":[{"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1800"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1800"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1800"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}