A document prepared for Eurozone finance ministers indicates they will deliberate on February 16th on strategies to enhance the euro's global standing and reinforce Europe's economic security. The proposed methods include issuing euro-denominated stablecoins and increasing the volume of joint European Union debt.
The document, drafted by the EU's executive body, the European Commission, comes as the global economy contends with trade tensions, growing skepticism towards the U.S. dollar as a safe-haven currency, and rapid innovation in payment technologies.
The Commission states that in the face of increasing risks associated with the weaponization of the international monetary and financial system, the EU must take action to strengthen its economic and financial security and its capacity to advance its own interests.
Currently, the euro is the world's second-largest reserve currency after the U.S. dollar, accounting for approximately 20% of global currency reserves, compared to the dollar's 60%. Twenty-one of the 27 EU member states use the euro.
The Commission argues that reinforcing the euro's status will support global financial stability and the EU's trade and financial relationships. It would also enhance the EU's ability to uphold its values and contribute to the effective implementation of its sanctions policies. Furthermore, it would protect the EU economy from external pressures and reduce financing costs and currency risks for businesses.
The Commission suggests that EU governments should explore the possibility of issuing euro-denominated digital assets, such as stablecoins, tokenized deposits, and a central bank digital currency (CBDC). They should also address risks associated with stablecoins backed by foreign currencies. Euro-denominated instruments currently represent less than 1% of the rapidly growing stablecoin market, which is overwhelmingly dominated by U.S. dollar assets.
EU officials warn this situation creates a risk of European capital flowing to the United States, thereby stimulating demand for U.S. assets at the expense of European ones.
The document also states that EU governments should work to deepen euro-denominated debt markets. This could be achieved by issuing "EU bonds to jointly finance common projects with clear EU added value" and by encouraging companies and governments outside the eurozone to issue euro bonds. While markets are eager for more EU joint debt, a triple-A rated asset, Germany and some other northern European countries remain reluctant or opposed.
Currently, there is approximately €1 trillion in outstanding EU joint debt issued by EU institutions, compared to about $27 trillion in U.S. debt. This makes EU debt significantly less liquid and less attractive to large investors.
The document prepared for the ministers also contends that the euro would play a larger global role if the European Central Bank offered more bilateral liquidity arrangements to third countries. Three sources indicated on Thursday that the ECB is already working on this initiative.
ECB President Christine Lagarde has also stated that the ECB will present a similar list of "major reforms" to a meeting of EU leaders on February 12th, aimed at boosting growth and competitiveness and "truly unlocking Europe's talent."
The document further recommends that all European development aid and loans to third countries should be denominated in euros. European companies should also seek to invoice trades in oil, gas, raw materials, defence, and transport equipment in euros.
Europe should establish its own payment system, independent from Visa and Mastercard, which currently dominate electronic payments within the EU-27.
To strengthen the economy and make Europe a more attractive destination for investment, governments should remove barriers to the trade of goods and services between EU countries. They should also establish unified legal, tax, and labor law systems to ensure all companies operating within the bloc receive equal treatment.
The document urges governments to act swiftly to enable the free movement of capital across EU nations by harmonizing investment, trade, tax, and regulatory rules. This would help encourage the investment of approximately €10 trillion in savings, currently held in personal deposit accounts, in more productive ways, primarily to fund company growth.
Finally, the document suggests finance ministers should consider transforming the eurozone's €500 billion rescue fund, the European Stability Mechanism, into an EU institution rather than an intergovernmental company owned by eurozone governments. This change would allow it to handle the issuance of all EU debt, functioning similarly to an EU debt agency.
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