Money has turned into a political weapon: they want the euro to be a challenger to the dollar, but how can that be achieved?

The euro is the second most used currency in the world, but it is still far behind the dollar. For this reason, the finance ministers of the euro countries discussed in Brussels how the international position of the euro can be strengthened.

The EU wants a stronger euro to increase the Union’s economic security, competitiveness and strategic independence.

President of the Eurogroup, Finance Minister of Greece Kyriakos Pierrakakisnoted after the meeting that recent geopolitical events have shown how financial and currency systems are increasingly being used as political tools. According to him, strengthening the role of the euro is essential for the EU’s right to monetary policy autonomy.

The discussion was fueled by the commission’s recent report on the factors preventing the international use of the euro. According to the report, the euro underperforms in many neighboring regions, even though the EU acts as the countries’ most important trade and investment partner. The US dollar covers about 60 percent of the world’s goods exports, the euro’s share remains at about 25 percent.

The Commission warns that world trade and capital flows are increasingly divided along geopolitical lines, especially due to the customs policy initiated by the United States last year. According to the report, trade restrictions and economic sanctions are increasingly used as geopolitical tools.

The Commission urges EU countries to strengthen their economy and institutions, to make financial markets more efficient and to increase the Union’s external influence. In addition, the Commission emphasizes increasing the use of the euro, especially in the energy and raw material markets, the defense industry, the transport and energy sectors, and in the pricing and invoicing of contracts.

According to the commission, wider use of the euro would reduce companies’ exposure to exchange rate fluctuations and their dependence on the dollar in crisis situations.

Fix your nest

All 21 euro countries supported the strengthening of the euro at Monday’s meeting. The line of many ministers was that the international role of the euro can be strengthened most effectively by first putting one’s nest in order, i.e. by making the EU an attractive operating environment for companies. This means, among other things, reforming the internal market, completing the capital market union and the banking union, and reducing strategic dependencies.

Finance minister Riikka Purra (ps) emphasized in Brussels that the attractiveness of the euro is based on strong economic growth. According to him, private sector investments, deepening of the internal market, removal of trade barriers and promotion of financial market integration are needed. Purra emphasized that when the basics are in order, “a good product will sell itself”.

He also reminded “that without the sustainability of the public finances, strengthening the international role of the euro cannot possibly succeed”.

According to Purra, there is too much saving and too little investment in the euro area, which weakens the international role of the euro.

“We need investments from the private sector and, through this, genuine economic growth. This way we could use these accumulated capitals ourselves and Europe could become an attractive investment destination,” said Purra.

Yurgent debt

Since 2020, the EU has become the world’s third largest issuer of AAA-rated public debt. Some of the member countries consider that the position of the euro could be further strengthened by increasing the common euro debt. In particular, France and Spain have urged the EU to offer the world eurobonds as an alternative to the dollar. The Commission’s report also highlights the possibility of increasing the issuance of EU-level bonds.

Also EK’s head of EU affairs Lotta Nymann‑Lindegren side on Tuesday Kauppalehti’s Talousaam EU loan instruments: “If we have the opportunity at European level to create such loan instruments where the interest rate is significantly more favorable than it would otherwise be for some member countries, and as a result investments can be made and strategic competitiveness can be increased, then would this be a perfectly reasonable course of action?”, he said.

However, Finland and Germany oppose the new joint debt.

Purra justified Finland’s negative line to Kauppalehti, even though the EU’s investment deficit is 1,200 billion euros per year and 500–1,000 billion euros are needed annually for the defense of the European NATO countries.

“We don’t run out of targets here in Europe”, Purra said and pointed out that for some, joint debt “seems to be a kind of silver bullet that would solve these issues by itself”.

According to him, the EU’s own structures must first be fixed before anything else can be thought of.

When Kauppalehti asked why joint debt is good for supporting Ukraine but not for strengthening the EU, Purra answered: “Really, in accordance with the government program, such solutions have also been possible for Ukraine and we consider it very important.”

The actions of the ECB

The European Central Bank has also taken several measures in recent years to make the euro a more attractive reserve and payment instrument.

Among other things, the ECB expands the reserve system for euro liquidity (repo line) to be global and permanent, which enables all central banks to have temporary access to euro liquidity in the event of market disturbances. The new arrangement will be introduced later this year.

The ECB has also confirmed permanent swap lines with other major central banks, which improves the availability of euro-denominated financing between different currencies.

President of the ECB Christine Lagarde stated at the Munich Security Conference that as geopolitical tensions increase, financial market instability increases and the global role of central banks as financiers of last resort becomes stronger. According to Lagarde, this increases confidence in the euro.