A stronger international role of the euro benefits Europe's economy
writer: Valdis Dombrovskis, Vice-President of the European Commission, in charge of Euro and Social Dialogue
An even stronger role for the euro in international markets would increase the EU’s independence and be good for companies in Europe. To give the European single currency a boost, capital markets and banking union should be moved forward and new European payment systems built up.
Europe's single currency, the euro, is shared by 19 Member States and used every day by 340 million European citizens. In addition, around 60 countries in the world use the euro or tie their currency to it. Together with the Single European Payments Area, or SEPA for short, the euro offers many practical advantages, not least for medium-sized export-oriented companies: it enables cross-border and international value chains without currency transaction costs, and it protects from exchange rate risks, making cross-border payments as easy as domestic payments .
A strong currency for strong companies
In 2019 we have to aim even further. Whether big or small, Europe's companies have been operating around the world for years. But with the rise of new regional powers, and the shift of economic focus to the East, the world is becoming more multipolar. At the same time, the multilateral, rule-based international economic system is increasingly put into question. Against this background, Europe needs to make better use of its own strong tools to support international trade and economic integration.
The euro is already the second most used reserve currency in the world, after the US dollar. Both currencies are on a par when it comes to international payments. By building on this to strengthen the international role of the euro, we would also be strengthening our own sovereignty.
There are many benefits: a stronger international euro can make the world economy less dependent on a single currency and less vulnerable to shocks. It can simplify trade around the world for European companies - the more our companies can transact their international business in euros, the lower their costs and economic risks, and the lower their dependence on third country political interference. Last but not least, a strong euro enables us Europeans to be more independent on an international level, and to better protect our citizens and businesses.
Capital markets and banking union
How can we move forward with strengthening the international role of the euro?
A currency is only as strong as its foundation. Therefore we have to complete the architecture of the euro. With recent progress on a Capital Markets Union, we are on our way towards more integrated markets for capital in Europe, which would improve the financing of the economy and increase choice for investors. In addition, we need more liquid markets for Euro-denominated securities - including assets which can be used as collateral – because they are an indispensable basis for using the Euro in international markets. Finally, a full Banking Union with stronger and better regulated banks would further increase confidence in the EU financial sector and the single currency.
Second, we must promote the use of the euro in international trade. This applies to a number of strategic sectors, such as food, aircraft and transportation, and commodities. Perhaps most important is the energy sector. Today, over 80% of European energy imports are valued and paid in US dollars. That is why the Commission is consulting on how to increase the use of the euro in contracting and transactions in these sectors.
European payment systems
Finally, we need to ensure that Europe and the euro can rely on robust market and financial infrastructures that are sufficiently protected against outside influences. One example is the infrastructure that Europeans use every day for our payments. Today, this area is dominated by a few credit card providers, and large technology companies are increasingly entering the market. But new technologies offer many opportunities to build new, efficient and diversified European payment systems. For example, with new technology for instant payments, customers could make electronic payments across Europe within seconds. By developing our own systems and solutions for such instant payment, we could increase Europe's independence in the world. The necessary infrastructure already exists, and the European Commission is providing support for the development of interoperability standards between different Member State technologies.
Of course, it is in the first place for global markets to decide what currencies they use. But the points I have mentioned are levers that we can pull to make this choice more attractive for them, and thereby further strengthen the use of the euro in international markets. For the sake of our citizens, our companies, and for Europe's future independence in the world, we must make better use of the opportunities that our single currency provides.