_ Josef Janning, Head, European Council on Foreign Relations. Berlin, 8 December 2018.
The European Commission’s plans to strengthen the role of the Euro in international trade have been driven by the recognition of structural dependence of Europe’s trade on the US economy, on the Dollar as a global transaction currency for key commodities — and of the massive extraterritorial effects US legislation and sanctions policies have on Europe because of that dependence. By no means, this approach is meant to “abandon the dollar” or to replace the US currency with the Euro. Eurozone countries are neither willing nor currently able to address the political consequences of such a replacement strategy nor to face the fiscal consequences of the Euro as a global reserve currency.
At best, a strengthening of the Euro could lead to replacing the US-Dollar with a basket of the globally leading currencies, the Renminbi, Yen, Euro next to the Dollar. The EU would need to insure that major energy contracts would be concluded on a Euro base, resp. use the currency basket. Likewise, all key commodity contracts from soybeans to airplanes would have to be billed in Euro. These means would reduce the exposure to the Dollar and currency related implications of Us sanctions, although they would not reduce the exposure of European companies to the US market. Evidently, even including the Chinese market, exporting to the US or producing in the US is more important to many of the major European companies than any other export market outside of the EU. After all, the US and EU are each other’s most important export and investment destination — a fact that European policy makers will not want to change in their own best interest.
For Russia, a “de-dollarization” should reassure the energy relationship with European countries and Germany in particular, but does not offer significant strategic advantage beyond this. With a GDP the equivalent of Spain, Russia’s market is much too small and too static to balance the Transatlantic business link. Russian geopolitics still appears to be reinforcing disputes across the Atlantic (as if there wasn’t enough already) and out to enhance its position by irritating European policy makers, undermining EU integration and bullying neighbors. This way, the partnership potential with Europe Russia could possibly tap into will remain very limited.
The real game changer, however, is China, the only rival to the American economic and geopolitical position in the eyes of decision makers in Washington. China has been the primary focus of US strategy since the turn of the century, a shift that has been overshadowed by the fight against terrorism and wars in the Middle East after 9/11. The Trump administration has returned the focus to China. As this rivalry intensifies, America’s foreign relationships are increasingly viewed through the prism of their usefulness to US policy to contain China. Beijing seems to gradually develop the same approach. This could quickly escalate into higher level of trade wars between both which would then have direct effect on others such as Europe and Russia, as both sides would expect their partners to support and not undercut their punitive measures. The political and economic effects of such a scenario hold far greater disruptive potential than is currently the case in result of the US withdrawal from the Iran deal. Strengthening the Euro as a trade currency has little to no effect in this scenario.