Get ready for global euro
International monetary and financial systems may not be invariable, but they do not change often. That is why the turmoil caused by the US President Donald Trump’s trade and customs war are so remarkable – and difficult to unravel.
But World War I had a serious impact on the UK, which by the 1930s no longer had enough resources to support the international monetary system. And although the US was an ascending force, they were not yet ready to replace the UK. This « Kindleberger Transition » – the period between the world hegemonic – coincided with the great depression and the escalating political turmoil, the culmination of which was World War II.
At the end of the war, in 1944, delegates from 44 countries met in Breton Woods, New Hampshire, where they organized a smooth transition between old and new hegemonic. In this way, they affirm the actual superiority of the US commercial, financial and military power.
However, it seems that we are approaching a new « Kindleberger Transition ». The existing hegemon seems to be self -destructed as it refuses to provide global public goods, and there is no clear candidate to take his place. The European Union is not ready to take over this mantle, and China is not even integrated into the global financial markets.
If a currency is to play an international role, the country that emits it must usually have economic superiority and occupy the central place in world trade. These qualities depend on the innovative possibilities and potential for growth, with military power and geopolitical alliances also playing a role. None of this is possible without an open economy and high quality and stable institutions.
By pursuing policies that undermine US institutions, fundamental research, the multilateral approach, and the prospects for long -term growth of the economy, the United States under the guidance of Trump are rapidly eroding trust in the dollar. It has never been as obvious before that after the announcement by Trump in early April of over -high duties on goods from dozens of countries with bilateral trade surpluses. The yield of US state securities has increased, the US stock market has dropped, and the dollar has fallen – a combination that is often observed in developing economies.
The economic and financial difficulties initiated by Trump in the United States create the opportunity for the euro area – which emits the second most important international currency in the world – to assign some of the excessive privileges that the United States has been enjoying for a long time. This includes cheaper capital for governments and Eurozone enterprises – which could support fiscal resilience – and more easily refinancing during crisis, as demand for « secure » Euroactive will increase. This also includes greater geopolitical influence – extremely important at a time when the EU seeks to achieve strategic autonomy.
But more must be done in order for the euro area to raise its international prestige.
- For starters, the euro area must deepen its single market for goods and services and strengthen its trade relations wherever possible. Given the leading role of Europe in the world worldwide, it could consider the possibility of starting to invoices in the euro -sparing climate products – such as decarbonized energy equipment, electric vehicles and goods used in electrification – while constructing the relevant financial instruments (such as those related to the air conditioning of the air conditioning.
- The euro area should also be committed to completing the Banking Union and the Union of Savings and Investment, as stated in many recent recent political reportsS In order to ensure in -depth and integrated capital markets – crucial to innovation and growth – effort should be made to create real secure assets throughout the euro areaS Co -issuance of an emergency debt on defense could be a good starting point.
- In addition, instead of allowing the euro area payments to remain largely dependent on US payment systems, the block must increase the sovereignty of its own. This is likely to rely on the Central Bank’s digital currency (CBDC), supplemented by a stable payment system that may include or not include stable coins in euros. Finally, the ECB function as a last resort lender must be carefully structured so as to ensure widespread and strong confidence in the euro.
These changes will not be easy to implement. But if Kindleberger has taught us something, it is that the world economy will be in a better position if, with the withdrawal of America from world economic and financial leadership, Europe quickly intervened in it.
© Project Syndicate
