A precarious euro in a Europe with no ambition

The dollar has been an integral part of America’s foreign policy for decades. Much more than the currency of reference for global trade, greatly surpassing the privileged status of reserve currency for the central banks, the Greenback is the supreme arbiter. With the simple press of a button, the US can refuse access for any country, company or financial institution, however large or small they are. Additionally, with more than 60% of global reserves denominated in dollars, the euro – with only 18% – looks like a dwarf. Not content with being the shining star of the currency exchange market – the biggest market in the world – as transactions in dollars are generally 3 times greater than those in euros, the dollar is also leading the dance onto international bond markets since – outside of Europe – the whole world borrows in dollars.

With such a backdrop, it goes without saying that the European Union has been greatly hurt by America’s trade war, mainly because of its surpluses. Its balance of payments that are massively in surplus, amounting to 3.5% of GDP for the whole EU – a consequence of austerity and the nonsensical Maastricht criteria –, make it dependent on the rest of the world for its funding. From this perspective, America’s protectionism is first targeting Europe, which is greatly vulnerable after leading ultra-orthodox policies under Germany’s authority, when it would actually have made much more sense to keep a (small) trade deficit. Europe’s resilience, just like the its ability to overcome the next inevitable crisis, will only be assured by mutualising debts, which for the moment has been rejected with horror by the German and also Dutch political and economic elites.

This is exactly why when the euro was created the German leaders, supported by the Bundesbank, refused from the outset to grant the euro a strong international standing. They feared losing control and that if the euro were given the same status as the dollar this would put the fight against inflation in jeopardy, which was a genuine obsession of the Germans’. This original sin is now making the task all but impossible for the leaders of the Union, faced with this conflict that begins with Donald Trump. Whatever the measures and responses from Europe are, they will in fact be negated by a euro that is structurally impossible to be used as a defence, like the dollar is. This is also why any European effort to counter the US’s extraterritoriality will be doomed to fail, since businesses in the Union and the (few and far between) ones wishfully thinking they can trade in euros – who will be banned from the dollar market – will not be supported by a euro market that is still at the embryonic stage.

As for a possible tit-for-tat measure, namely EU extraterritoriality, the Americans are having a good chuckle at the idea since the Union has no means of applying it, just like it doesn’t have the financial instruments to use in international trade to circumvent the dollar. But why does it matter? These facts, just like the weakening of Europe’s common currency, are the upshot of a choice made by the Union’s neoliberal founding fathers. Europe effectively has as its sole ambition to serve as a platform for trade and exchanges. And its leaders are under no geopolitical pretence. The euro has therefore been condemned to remain a precarious currency.