布鲁盖尔-Reopening_-Europe_10页_266kb

Summary: Is the COVID-19 crisis an opportunity to boost the euro as a global currency?

Core Content

The document explores whether the COVID-19 crisis presents an opportunity for the euro to become a more prominent global currency. It highlights the current status of the euro as an international currency and the challenges it faces in competing with the US dollar, which remains the dominant global currency. The authors argue that while the euro has some international functions, such as being a reserve currency, financing currency, and invoicing currency, it has not achieved the same level of dominance as the dollar. The euro's international role peaked in 2005 and has since declined, especially after the euro crisis.

Main Points

• The euro has three classical functions of an international currency:

  1. Unit of account in international trade and finance
  2. Medium of exchange for cross-border transactions
  3. Store of value as a reserve and investment currency

• The euro is not a dominant currency, but rather a neutral currency, as opposed to the dollar, which is a top currency with significant exorbitant privileges (economic and geopolitical advantages).

• The US dollar enjoys seigniorage revenues, lower yields for government debt, competitive advantages for domestic banks, and geopolitical influence.

• The euro area lacks the full set of characteristics required for a dominant currency, including geopolitical and military power, developed financial markets, and centralized fiscal and monetary control.

• Promoting the euro's international role requires institutional improvements, such as increasing the supply of safe assets, completing the banking union, advancing the capital markets union, and enhancing fiscal coordination.

Key Initiatives and Strategies

• Euro Central Bank (ECB) has taken steps to support the euro's role by maintaining the safe asset status of euro-area sovereign bonds through programs like the Pandemic Emergency Purchase Programme (PEPP).

• The Eurogroup and European Council have agreed on joint borrowing to support the Covid-19 recovery, with initiatives such as the SURE credit line and European Financial Stability Facility (EFSF) contributing to safe asset supply.

• The European Commission proposed issuing up to €750 billion in EU debt to finance its recovery plan, which could significantly increase the supply of common European safe assets.

• Joint borrowing via the EU budget is seen as a promising approach, as it allows for greater political legitimacy, monitoring and control, and lower funding costs compared to national debt.

• The EU budget can also act as an insurance mechanism, reducing the burden on countries experiencing negative shocks and increasing their receiving capacity.

Prospects for the Euro

• Growth is essential for the sustainability of debt and the attractiveness of the euro as an investment currency.

• A European recovery programme should focus on long-term growth, productivity, and innovation, with a particular emphasis on climate neutrality and green investments.

• The European Green Deal and green bonds could play a key role in boosting the euro's international role, as they represent a new and growing asset class with global appeal.

• The success of the euro as a global currency depends on institutional reforms, political will, and economic stability.

Conclusion

• While the euro has some international functions, it has not yet reached the status of a dominant currency.

• The COVID-19 crisis offers a unique opportunity to enhance the euro's role by increasing the supply of safe assets, ensuring a strong recovery, and promoting European geopolitical and economic leadership.

• Major institutional changes, such as fiscal integration and enhanced EU governance, are necessary to secure the euro's future as a global currency.

• The EU's approach should be strategic, coordinated, and inclusive, ensuring growth and stability across all euro-area countries.