Europe takes aim at green­back

The New Zealand Herald - - Opinion -

The Euro­pean Union is aim­ing to chal­lenge the green­back’s dom­i­nance in global mar­kets, as it seeks to strengthen the in­ter­na­tional role of its cur­rency and be­come more in­de­pen­dent of the US.

The EU must de­velop “a full range of trust­wor­thy in­ter­est rate bench­marks” in fi­nan­cial mar­kets, and a fully in­te­grated in­stant pay­ment sys­tem, ac­cord­ing to a draft set of ini­tia­tives from the Euro­pean Com­mis­sion.

The com­mis­sion’s plans are aimed at re­duc­ing the so-called “ex­or­bi­tant priv­i­lege” of the US dol­lar, which al­lows Wash­ing­ton to force global com­pli­ance with its for­eign pol­icy goals, in­clud­ing by the EU.

“There is scope for the euro to de­velop fur­ther its global role and achieve its full po­ten­tial, re­flect­ing the euro area’s po­lit­i­cal, eco­nomic and fi­nan­cial weight,” says the com­mis­sion’s draft

The pro­posed mea­sures in­clude us­ing the euro as de­fault cur­rency in en­ergy con­tracts be­tween EU mem­bers and other coun­tries, as well as the cre­ation of euro-de­nom­i­nated price bench­marks for crude oil.

Ac­cord­ing to a sep­a­rate memo ob­tained by Bloomberg, the com­mis­sion’s rec­om­men­da­tions will re­duce the risk of “dis­rup­tion of en­ergy sup­plies” due to the ac­tions of “third coun­tries”.

The com­mis­sion will also seek to make hedg­ing trans­ac­tions in eu­ros more at­trac­tive. This could be achieved by re­quir­ing a greater num­ber of con­tracts to be cleared through cen­tral coun­ter­par­ties, it said.

Fi­nal­is­ing the re­form of scan­dal­rid­den fi­nan­cial bench­marks could also help “in­crease the at­trac­tive­ness of trad­ing and pric­ing eu­ro­de­nom­i­nated in­stru­ments,” the com­mis­sion said.

On top of that, of­fi­cials will help to foster “a fully in­te­grated in­stant pay­ment sys­tem” to re­duce re­liance on for­eign providers of card and on­line pay­ments, it said.

The com­mis­sion’s ef­forts to de­velop the euro’s in­ter­na­tional role re­flect grow­ing calls in coun­tries such as France and Ger­many for the EU to also adopt tools that will al­low it to pur­sue its for­eign-pol­icy goals with less re­course to an un­pre­dictable US ally.

“Re­cent ex­trater­ri­to­rial uni­lat­eral ac­tions by third coun­try ju­ris­dic­tions like in the case of re-im­posed sanc­tions on Iran, to­gether with re­cent chal­lenges to the in­ter­na­tional rules-based gover­nance and trade are a wake-up call re­gard­ing Europe’s eco­nomic and mon­e­tary sovereignty.”

The EU is the world’s largest im­porter of en­ergy, as its an­nual im­port bill av­er­ages more than ¤300 bil­lion ($491b) per year, ac­cord­ing to the memo.

A euro-de­nom­i­nated ref­er­ence oil con­tract “could be used as an un­der­ly­ing as­set for fi­nan­cial con­tracts, such as deriva­tives, that pro­vide the nec­es­sary risk man­age­ment tools for mar­ket par­tic­i­pants,” ac­cord­ing to the draft.

The pric­ing could be based ei­ther on ex­ist­ing pro­duc­tion fields in the Euro­pean Eco­nomic Area, or matched to phys­i­cal prop­er­ties in a “typ­i­cal” bar­rel in the EU crude oil im­port bas­ket.

The pro­pos­als also in­clude Euro­pean bod­ies and mech­a­nisms in­creas­ing their share of euro-de­nom­i­nated debt and pro­vid­ing tech­ni­cal as­sis­tance to com­pa­nies in Africa and the EU’s neigh­bours, and sup­port­ing them in adopt­ing the euro as their pay­ment cur­rency.

The plans come in par­al­lel with on­go­ing dis­cus­sions on how to set up a so-called spe­cial pur­pose ve­hi­cle that will fa­cil­i­tate pay­ments, in­clud­ing for Ira­nian oil.

Al­low­ing trans­ac­tions with Iran to go through — even as the EU’s lend­ing arm, the Euro­pean In­vest­ment Bank, has ex­po­sure to the US, mak­ing it more dif­fi­cult to act as a fi­nanc­ing chan­nel — will help the EU econ­omy and busi­nesses grow more in­de­pen­dent from the dol­lar and the US econ­omy, of­fi­cials say.

Still, ef­forts to set up such a ve­hi­cle are fac­ing sev­eral un­re­solved is­sues, in­clud­ing find­ing a lo­ca­tion for the op­er­a­tion and a way to re­as­sure banks in­ter­act­ing with it that they will be shielded from the risk of be­ing ex­cluded from fi­nan­cial mar­kets in the US.

Photo / Bloomberg

The EU be­lieves the US dol­lar’s dom­i­nance gives Amer­ica too much in­flu­ence over Europe’s for­eign pol­icy.

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