This is the moment of Europe, “the euro”

Stay in view of the free updates

Simply subscribe to Currency Myft Digest – it is delivered directly to your inbox.

Writer, President of the European Central Bank

We are witnessing a deep shift in the global ranking: open markets and multilateral bases breaking, and even the dominant role of the US dollar, the cornerstone of the system, is no longer certain. Protection, zero thinking and bilateral plays, take their place. The uncertainty is harmful to the economy of Europe, which was deeply integrated into the global trading system, with 30 million jobs at stake.

But the current shift also provides opportunities for Europe to control its fate and to obtain global protrusion. Nowadays, the euro is the second most currency in the world, with 20 percent of global foreign currency reserves, compared to 58 percent of the US dollar.

Increasing the global situation of the euro would bring tangible benefits: low borrowing costs, and reduce exposure to currency fluctuations and insulation from sanctions and forced measures.

But such a step towards increasing international importance to our currency will not happen by default: it must be obtained. As in previous periods, today’s concerns about the dominant currency do not yet lead to a significant shift towards alternatives. Instead, it is reflected in a High demand for gold.

In order for the euro to reach its full potential, Europe must strengthen three basic columns: geopolitical credibility, economic flexibility, and legal and institutional integrity.

First, the global euro position depends on the role of Europe in trade. The European Union is the largest trader in the world – the first partner of 72 countries, which represents about 40 percent of global GDP. This is reflected in a share euro As an invoice currency, which is about 40 percent. The European Union must use this position in favor of it by forging new trade agreements.

The “high concession” for an international reserve currency,, Referred to Valéry Gissard d’enstaing in the 1960s, comes with responsibilities.

To avoid the lack of liquidity of the euro abroad, the European Central Bank extends the swaps and linking to the main partners to protect the smooth transfer of its monetary policy.

Real trust, however, depends on difficult facts. Investors are looking for areas that honor their alliances. It has been proven that these guarantees enhance the currency share in foreign reserves Up to 30 degrees Celsius. Europe has a major shift towards rebuilding its solid power, which should also help enhance global confidence in the euro.

Second, the economic power is the backbone of any international currency. Successful exporters usually offer the triple of the main features: strong growth, to attract investment; Deep and liquid capital markets, to support large transactions; And a large supply of safe assets.

But Europe faces structural challenges. Its growth remains continuously low, and capital markets are still fragmented-despite the strong total financial position, with the ratio of debt to the 89 percent GDP compared to 124 percent in the United States-the provision of high-quality safe assets is backward. Modern estimates indicate distinctive sovereign ties with at least AA classification to less than 50 percent of the European Union GDP, compared to more than 100 percent in the United States.

In order for the euro to acquire the situation, Europe must take decisive steps by completing the unified market, which reduces the regulatory burdens and building a strong union for capital markets. Strategic industries, such as green technologies and defense, must be supported through coordinated policies at the European Union level. Joint financing for public commodities, such as defense, can create more safe assets.

Third, the investor’s confidence in the currency is eventually associated with the strength of the institutions they support. It is recognized that the European Union is not easy to understand from abroad. But structured and comprehensive decision -making guarantees checks, balances, stability and policy for certainty. Respect for the rule of law and the independence of major institutions, such as the European Central Bank, is a critical comparison that the European Union should benefit from.

To continue to lead these advantages home, we must reform the institutional structure of Europe. The individual veto should not be allowed to stand in the way of the collective interests of the other 26 members. More voting will be able to a majority in the critical areas of Europe to speak with one voice.

History teaches us that the systems seem permanent – even no longer. Entities have occurred in the dominance of global currency before. This is the moment of change is an opportunity for Europe: it is the moment of the “global euro”. To seize it and strengthen the role of the euro in the international monetary system, we must act decisively as the United Europe, which controls its fate.