The euro can internationalize further in global turbulence

Paris – The euro can strengthen its international role against the dollar in the current global turbulence, with significant benefits for the European Union, the Council of Economic Analysis (CAE) said on Tuesday.

Since his second term, the policy of US President Donald Trump – raising American tariffs, war in the Middle East – has eroded confidence in the greenback, after decades of dominance.

In a more fragmented world, this “opens a window of opportunity” for the euro, also facing the internationalization efforts of the Chinese renminbi, the CAE, an organization attached to the Prime Minister’s office, emphasized.

The euro is the second most widely used currency in the world, well behind the dollar, however.

The European single currency accounts for about 20% of global foreign exchange reserves, compared to 58% for the dollar, and only 18% of global trade invoicing (against 60%), even though the EU weighs more in global trade (16% versus 14% for the United States).

The dollar is dominant in international payment systems and commodity billing, note the authors of the report, economists Hélène Rey and Ludovic Subran.

However, “strengthening its international role could provide the European Union with significant economic and geopolitical benefits”: lower financing costs, reinforced influence in the global economy, reduced exposure to external shocks, or increased availability of funds to invest in defense, artificial intelligence (AI) or energy transition.

But achieving this requires “a targeted and extensive reform program,” according to economists.

They list recommendations: increase the issuance of safe European assets such as bonds, develop the euro capital market, strengthen financial infrastructure, encourage euro billing in trade agreements, and develop digital euro (especially stablecoins).

Emmanuel Macron said Tuesday that payment means represent “an essential part of our sovereignty,” within the framework of the French payment solution summit Carte Bancaire, a competitor to American giants Visa and Mastercard.

For the French president, “to give up control of payments would be to accept that the heart of our transaction depends on actors who may not necessarily align with us, who may not necessarily have our best interests at heart.”

The internationalization of a currency generally leads to its overvaluation. But the report estimates that the euro can preserve its competitiveness “if the process is gradual.”

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