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Brussels , 04/04/2019
ECO Public Hearing : "Strengthening the international role of the euro: European and international perspectives"
Credit : Mathieu Golinvaux / Isopix
The euro ranks second in the world as a reserve currency and as a currency used for fixed income securities issues and international trade transactions. However, its use internationally has yet to return to levels before the financial crisis, and its future role in the international monetary system is tied to the economic prospects of the euro area.
Prerequisites for fully developing the potential of the euro as an international currency include sound macro-economic policies in the EU, deepening the Economic and Monetary Union (EMU) and completing the Banking Union and the Capital Markets Union (CMU). But what is needed above all is mutual trust and a shared vision among the Member States on the future of the EU economy. These were the main conclusions from the hearing on the international role of the euro, held by the European Economic and Social Committee (EESC) on 4 April 2019.
The hearing provided valuable input into the on-going work on the Committee's opinion related to the European Commission's recent communication Towards a stronger international role of the euro. Policy-makers and civil society representatives exchanged views on the euro as a strategic asset and on the ways it could support a more balanced economic development in the wider world.
A stronger euro would translate into lower transaction costs and risks for European industry and consumers. Europe would strengthen its influence in the world and boost its sovereignty. In the view of the speakers at the hearing, another reason for further enhancing the euro's international role is that the world's leading currency at this time, the US dollar, has become more politicised over recent years. Against this background, the euro has the potential to help build a multipolar and more resilient international financial system.
Commenting on the economic backdrop, Pervenche Berès MEP said: Europe cannot be naïve anymore. It needs to use all available tools to respond to the challenges of its global competitors, including by building up its external dimension. The euro is going to be a crucial part of this.
The speakers generally welcomed the Commission's initiative to strengthen the euro, but were critical about its possible scope. The main reason why the US dollar is and will remain strong in the markets is market depth and liquidity, said Hans-Joachim Klöckers from the European Central Bank, adding that: At European level, the CMU has the potential to develop and integrate the market. Both aspects are important for the role of the euro. What we need in the end is a single market which is deep and liquid.
For EESC rapporteurs Philip von Brockdorff and Dimitris Dimitriadis, upward economic convergence and increased social cohesion were also crucial. Other important aspects, they believed, were a more active European diplomacy in the international fora and a common European vision on certain strategic issues.
Sophie Javary from BNP Paribas endorsed these arguments and drew attention to the need for a pan-European safe asset: It is key that we push for a euro-denominated euro area instrument, with one single agency that issues the debt for the account of the Member States and maybe somehow mutualises the risk. It may sound utopian but this is clearly the way forward. This would, she thought, enable the euro to be seen as a stable reserve currency and a safe store value by central banks, investors and savers alike.
Generally, the speakers agreed that the European financial system must effectively address industrial and climate change not only in order to raise confidence in the euro and to strengthen its international standing, but also to contribute to building the necessary political trust and support for European integration, which is also a vital condition for a strong currency.
The EESC notes that the international role of the euro has not yet recovered to the pre-financial crisis level. Whereas the European Commission's proposed measures are welcome and deemed necessary by the EESC, they may not go far enough given the extent of the euro area's social and economic challenges. Social cohesion, economic upward convergence and the promotion of competitiveness and innovation should be the basis on which the euro area's economy gathers pace and supports a stronger international role for the euro.
EESC opinion: Towards a stronger international role of the euro