French President Jacques Chirac lauded a Europe that was “establishing its identity and force” when 12 countries embraced the euro two decades ago.
To the euro’s most ardent supporters, the currency represented not only a leap of faith into European unification but also the start of a rivalry with the US and its formidable dollar.
But, 20 years later, the dollar is undeniably the most powerful currency.
When the coronavirus swept over the world, the value of the dollar skyrocketed as investors flocked to the protection of the world’s de facto global currency.
More than $2.1 trillion is now in circulation, with dollars accounting for around 60% of foreign-exchange reserves held by central banks.
According to the European Central Bank, the euro has a 20% market share.
Bundesbank model
The unified European currency is the result of a difficult agreement between France and Germany, in which Berlin gave up its beloved Deutschmark in exchange for Paris’ support for German reunification following the collapse of the Berlin Wall.
The restrictions that the European Central Bank imposed on the euro in the early days had a definite German flavor to them, with stability and inflation control being the sole priorities.
Making the euro a dominant worldwide currency may have been the French vision, but not the German public’s, according to Guntram Wolff, director of the Bruegel think tank in Brussels.
When the ECB first opened its doors, it was very much following the Bundesbank model, which meant it was virtually neutral on that issue, Wolff added.
Trump attack
With Donald Trump in the White House, the idea of pushing the euro as a tool of power had resurfaced.
When Trump pulled out of the nuclear deal with Iran, European companies who had hurried to invest in the country faced US retaliation.
The EU tried to put up a legal workaround to keep European businesses out of Washington’s crosshairs, but the attempt failed as businesses shivered at the consequences of defying the US and the dollar’s long reach.
EU leaders were so outraged that they instructed the European Commission to look into methods to counteract the dollar’s weaponization.
The commission issued some recommendations in January, but no legislative proposals.
Reality
According to a European official familiar with the debate, the idea has lost steam since Trump’s departure. Most experts feel that the missing magic ingredient is a safe asset, such as a euro version of the US treasury bond, which has been the global investor’s haven in turbulent markets since World War II.
A Eurobond would certainly help, according to Wolff of the Bruegel Institute, but a productive economy would be even better for the euro. If the economy is growing, the worldwide investment will flow into Europe, bolstering the euro as a currency.
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