By Jan Strupczewski
BRUSSELS, Feb 6 (Reuters) – Euro zone finance ministers will discuss on February 16 how to boost the global role of the euro and strengthen Europe’s economic security through issuing euro-denominated stablecoins and more joint EU debt, a paper prepared for them shows. The document, seen by Reuters, was prepared by the European Commission, the European Union’s executive arm. It comes as the global economy is buffeted by trade tensions, doubts about the dollar as a safe-haven currency and rapid innovation in payment technologies.
“Faced with the risk of increasing weaponisation of the international monetary and financial system, the EU needs to act to strengthen its economic and financial security and the capacity to promote its own interests,” the paper said.
RESERVE CURRENCY The euro, now used by 21 of the 27 EU member countries, is the world’s second-biggest reserve currency after the U.S. dollar, accounting for around 20% of global currency reserves, compared to a 60% share for the dollar. In the paper for ministers, the Commission argues that a stronger position for the euro would help global financial stability and EU trade and financial relations, enhance the EU’s capacity to stand up for its values and help implement its sanctions policy effectively.
It would also shield its economy from external pressure, and lower financing costs and exposure to currency risks for businesses. The Commission said EU governments should look at the possibility of issuing euro-denominated digital assets like stablecoins, tokenized deposits and central bank digital currencies (CBDC), and address the risks related to foreign currency-backed stablecoins.
Euro-denominated instruments account for less than 1% of the rapidly growing stablecoin market, which is completely dominated by dollar-denominated assets.
This creates the risk that capital from Europe will flow to the United States, fuelling demand for U.S. assets at the expense of European ones, EU officials said.
EU governments should also seek to deepen the euro-denominated debt market through “EU issuance to jointly finance common projects with a clear EU value added” and by encouraging companies and governments outside the euro zone to issue debt in euros, the paper said. Markets are keen to see more issuance of joint EU debt, a triple-A rated asset, but Germany and some other northern European countries are reluctant or opposed. Around 1 trillion euros of joint EU debt issued by various EU institutions is currently outstanding, compared to some $27 trillion in U.S. debt, making EU debt much less liquid and less attractive for large investors. The paper prepared for the ministers also said the euro would also play a bigger global role if the European Central Bank offered more bilateral liquidity arrangements to third countries. The ECB is working on that already, three sources told Reuters on Thursday.
ECB President Christine Lagarde also said the central bank would present EU leaders meeting on February 12 with a similar checklist of “significant reforms” needed to enhance growth and competitiveness “and to really unleash the talent of Europe”.
REMOVE OBSTACLES TO TRADE AND INVESTMENT European development aid and loans to third countries should also be all in euros and European companies should seek to invoice trade in oil, gas, raw materials, defence and transport equipment in euros as well, the paper said.
Europe should also create its own payments system to become independent of Visa and Mastercard which now completely dominate electronic payments in the 27-nation EU.
To strengthen its economy and make Europe a more attractive place to invest, governments should remove obstacles to trade in goods and services between EU countries and create a single legal, tax and labour law regime that would be the same for all companies willing to operate across the bloc.
Governments should also move fast to allow capital to flow freely across the EU by harmonising investment, trading, tax and supervision rules, the paper said. That would help encourage some 10 trillion euros of savings now languishing in individual deposit accounts to be invested in more productive ways, mainly to finance the development of companies. Finally, the paper said the finance ministers should consider making the euro zone’s 500 billion euro bailout fund, the European Stability Mechanism, an EU institution, rather than a company owned by euro zone governments, and allowing it to handle all EU debt issuance, akin to an EU debt agency.
(Editing by Catherine Evans)
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