Download publication

Policy Contribution

Is the COVID-19 crisis an opportunity to boost the euro as a global currency?

The euro never challenged the US dollar, and its international status declined with the euro crisis. Faced with a US administration willing to use its hegemonic currency to extend its domestic policies beyond its borders, Europe is reflecting on how to promote it currency on the global stage to ensure its autonomy. But promoting a more prominent role for the euro is difficult and involves far-reaching changes to the fabric of the monetary union.

By: and Date: June 5, 2020 Topic: European Macroeconomics & Governance

This note was prepared at the request and with the financial support of the Croatian Presidency of the Council of the European Union, as a background paper for discussion at the informal ECOFIN in Zagreb, which was cancelled because of the COVID-19 outbreak and implementation of containment measures.

• The euro became an international currency when it was created two decades ago. However, the euro’s internationalisation peaked as early as 2005 and it was never comparable to the US dollar. Its international status declined with the euro crisis. Faced with a US administration willing to use its hegemonic currency to extend its domestic policies beyond its borders, Europe is reflecting on how to promote actively the internationalisation of the euro, to help ensure its autonomy. But promoting a more prominent role for the euro is difficult and would involve far-reaching changes to the fabric of the monetary union.

• Historically, countries issuing dominant currencies have been characterised by: a large and growing economy, free movement of capital, a willingness to play an international role, stability, an ability to provide a large and elastic supply of safe assets, developed financial markets, and significant geopolitical and/or military power. The monetary union does not meet all these criteria.

• The only way for the euro to play a major international role is to improve the institutional setup of the monetary union. First, the supply of euro-denominated safe assets from the monetary union should be increased. To avoid a COVID-19 depression, euro-area countries have increased massively the supply of their debt securities in the last two months. With its new purchase programme, the European Central Bank has ensured that euro-area sovereign bonds retain their safe asset status. Decisions by the Eurogroup also increase the supply of common European safe assets. The European Commission’s proposal to issue up to €750 billion in EU debt to finance its recovery plan is a step in the right direction.

• In federations, joint issuance typically goes hand-in-hand with federal and central control of spending and a strong grip on revenues. To be politically sustainable, similar central control would be needed in the EU. The treaty-based EU framework is the closest to fulfilling these criteria with political accountability through the European Parliament, political control via the Commission, and a court of auditors and an anti-fraud office, but ultimately the treaty base is insufficient for a true quantum leap.

• It is essential to ensure a strong recovery for all countries and thus make the euro area an attractive destination for investment. A strong recovery will also be fundamental to preserve or even improve the supply of safe assets, as growth is crucial for debt sustainability.

Recommended citation
Claeys, G. and G.B. Wolff (2020) ‘Is the COVID-19 crisis an opportunity to boost the euro as a global currency?’ Policy Contribution 11/2020, Bruegel

Read article More on this topic More by this author
 

Blog Post

COVID-19 has widened the income gap in Europe

Workers with low-educational levels suffered far worse than others in terms of COVID-19 related job losses during the first half of 2020 in the EU. Jobs for tertiary-educated workers even increased. Thus, the pandemic has increased income inequality, reinforcing the case for inclusive development.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: December 3, 2020
Read about event More on this topic
 

Upcoming Event

Dec
8
14:00

Innovative approaches to monitoring the risks and impact of COVID-19

What new innovative tools can we use to measure real-time economic and social risk?

Speakers: Zsolt Darvas, Jaime Garcia, Nicola Villa and Georg Zachmann Topic: Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic More by this author
 

Opinion

How to minimise the impact of the coronavirus on the economy

COVID-19 is a global killer. Austerity needs to succumb.

By: Rebecca Christie Topic: Global Economics & Governance Date: December 2, 2020
Read about event Download PDF More on this topic
 

Upcoming Event

Dec
15-16
11:30

Europe and India: Comparing Approaches to Global Economic Challenges

Stakeholders from government, private sector, media and academia/institutions come together to review India-EU relations and point to a promising direction for the future.

Speakers: Yamini Aiyar, Suman Bery, Navroz K Dubash, Ignacio Garcia Bercero, Alicia García-Herrero, Rajat Kathuria, Gautam Mukhopadhaya, Ananth Padmanabhan, Georgios Petropoulos, André Sapir, Shyam Saran, Simone Tagliapietra and Guntram B. Wolff Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic
 

Blog Post

The scarring effect of COVID-19: youth unemployment in Europe

Even before the pandemic, youth unemployment in the European Union was three times higher than among the over-55s. COVID-19 threatens to undo the last decade of progress: policymakers must act to avoid Europe’s youth suffering the scarring effect.

By: Monika Grzegorczyk and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: November 28, 2020
Read article More on this topic More by this author
 

Opinion

Grading the big pandemic test

COVID-19 almost one year on, it is time to assess who passed the test, and who failed.

By: Jean Pisani-Ferry Topic: Global Economics & Governance Date: November 27, 2020
Read article More on this topic
 

Blog Post

Europe is losing competitiveness in global value chains while China surges

The European Union owes much of its economic weight to its regional value chain and integration into the global value chain. But the EU’s global value chain role is shrinking, and while EU trade integration with China is increasing, it is mainly to China’s benefit, undermining the EU’s external competitiveness.

By: Alicia García-Herrero and David Martínez Turégano Topic: Global Economics & Governance Date: November 27, 2020
Read article More by this author
 

Podcast

Podcast

Steering the boat towards an unknown destination

Shocks pass, but change remains a constant. We need to start focusing on permanent changes in the economy and how to adapt to them.

By: The Sound of Economics Topic: European Macroeconomics & Governance, Global Economics & Governance Date: November 25, 2020
Read article Download PDF More by this author
 

Parliamentary Testimony

European Parliament

Euro area accession countries in the context of the pandemic

Testimony before the European Parliament on the subject of euro area accession.

By: Zsolt Darvas Topic: European Macroeconomics & Governance, European Parliament, Testimonies Date: November 19, 2020
Read article Download PDF More on this topic
 

External Publication

The evolution of European economic institutions during the COVID-19 crisis

This article discusses how the European institutions reacted and evolved during the early stages of the COVID-19 crisis in the first half of 2020.

By: Antoine Camous and Grégory Claeys Topic: European Macroeconomics & Governance Date: November 19, 2020
Read article Download PDF
 

External Publication

European Parliament

Monetary policy in the time of COVID-19, or how uncertainty is here to stay

The COVID-19 crisis has compounded the uncertainty that has come to characterise the European economy. We explore how this uncertainty manifests itself in terms of ECB decision-making and the long-run challenges the ECB faces.

By: Maria Demertzis and Marta Domínguez-Jiménez Topic: European Macroeconomics & Governance, European Parliament, Testimonies Date: November 12, 2020
Read about event More on this topic
 

Past Event

Past Event

Conference on European Economic Integration

How can the CESEE region become more resilient to such painful shocks and expand its policy space to support recovery? 

Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: November 5, 2020
Load more posts