Europe’s plan to free itself from dependence on Donald Trump’s United States is extending to money.
For years, the dollar has been the dominant currency on international markets — the favorite way to pay for everything from oil to long-term debt. This has given the U.S. an economic advantage: Desire for the dollar abroad means lower borrowing costs and cheaper imports, no exchange rate costs in international trade, and the ability to exert geopolitical influence.
But fears are growing that an unpredictable U.S. administration could use the dollar as a tool of coercion to achieve foreign policy goals. “It’s exciting to be able to make a difference, that we can do things without firing bullets,” U.S. Treasury Secretary Scott Bessent told POLITICO in Davos, in reference to Iran.
And so the European Commission has hatched a plan to knock the dollar off the top spot.
While strengthening the euro on the global stage is a long-standing goal for the EU institutions, a confidential Commission note circulated to deputy finance ministers for discussion last week and seen by POLITICO, explained that this has shifted from a desirable outcome to a matter of defense.
“The recent evolution in the international monetary and financial landscape necessitates a comprehensive reassessment of the euro’s global positioning strategy,” the EU executive wrote. “The EU needs to act to increase its resilience against the potential weaponisation of the international monetary and financial system.”
Whether it can be done is a different question.
POLITICO runs you through some of the main points in the Commission’s plan and their likelihood of success.
1. Complete unfinished work
The first step is one that currently tops the EU agenda: to increase economic productivity and integrate EU financial markets. But while leaders are set to meet informally to discuss economic competitiveness on Feb. 12, countries have been much more enthusiastic so far about cutting regulation than implementing common rules and reforms at home.
Core proposals to create a genuine single market for investment have been around for a decade and are seeing a new push through the Commission’s Savings and Investments Union rebranding. But the obstacles remain the same: overcoming the vested interests of market players and national public authorities.
When it comes to building a monetary union, the EU still lacks a common guarantee for bank deposits, due largely to Germany’s resistance to risk-sharing. Italy, meanwhile, continues to block a liquidity backstop for failing banks.
2. Let investors buy more EU debt
If you want investors to use the euro, one simple way is to borrow it from them through EU-backed bonds. With the EU’s €750 billion post-Covid recovery fund expiring at the end of this year, the Commission wants to issue more of this type of joint debt in its next seven-year budget in order to fund Ukraine or tackle unforeseen emergencies. But it will have to overcome resistance from fiscally conservative countries including Germany and the Netherlands, which don’t like the idea.
In the meantime, the Commission wants an existing tool — the European Stability Mechanism — to be brought under EU law and to be available to spend. The ESM is a €500 billion intergovernmental fund created in 2010 as a safety net for financial crises, and lies mostly unused. But traditionally frugal countries in Northern Europe killed a similar pitch years ago — and Germany remains an obstacle. “Is this a good idea? I would say yes, but I don’t think it’s on the table,” Bruegel Senior Fellow Rebecca Christie told POLITICO.
3. Enter the crypto ring
The U.S administration is betting on cryptocurrencies pegged to the dollar to protect the currency’s global dominance at a time when its own economic policies are weakening it. The Commission wants to do likewise: “For the EU, it is essential to foster the uptake of euro-denominated stablecoins,” it wrote, calling for an assessment of all the options “to enhance eurodenominated digital assets.” At the moment the share of stablecoins pegged to the dollar is over 90 percent.
The European Central Bank and the Commission have repeatedly clashed on how to deal with dollar stablecoins, with the ECB more focused on risks than opportunities. Only recently have EU policymakers fully embraced a made-in-EU response. “We can have both stablecoins (in euro) and tokenized deposits, new bank deposits. But if we have none of them, I would be worried about sovereignty,” French central bank Governor François Villeroy De Galhau said in Davos.
4. Overcome the digital euro stalemate
The Commission sees the digital euro — a digital currency issued by central banks that can be used for cross-border payments — as a way to strengthen the euro in the financial world of the future. It recommends approving a bill enabling the ECB to issue it this year.
But Commission President Ursula von der Leyen’s European People’s Party has picked a vocal skeptic of the project, Spanish lawmaker Fernando Navarrete, to lead work on the rules in the Parliament and it’s uncertain that a compromise can be reached, according to two Parliament officials granted anonymity to speak of (complicated) meetings behind closed doors.
5. Use the euro in contracts and trade deals
For years the Commission has explored how to bolster the use of the euro in energy contracts with countries outside the EU. But the push to decouple energy supply from Russia and increase gas imports from countries such as the U.S. is “rendering the prospects of a switch to euro-denominated transactions more distant,” the Commission wrote.
The EU executive wants to revive efforts by pushing to use euros for contracts in other key sectors, including critical raw materials, air transport and defense. It also wants to look at ways to support the euro payment infrastructure under new trade deals, such as the one just signed with India.
The sticking point here is not so much internal European resistance as the challenge of changing established practices in third countries, which traditionally use the dollar on the international market. As a next step, the Commission proposes to “obtain a better understanding of the obstacles for the euro’s wider use, while fully respecting national choices regarding monetary arrangements.”
