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COVID-19, economic autonomy, Euro, European Commission, European Union, finance, financial infrastructure, financial markets, SWIFT, USD, US sanctions against Iran
According to reports, after US sanctions on Iran exposed the fragility of the EU’s financial infrastructure, the EU plans to reduce its dependence on the US dollar financial system. According to officials who are currently determined to challenge the supremacy of the dollar, people’s renewed desire to increase the role of the euro is also partly inspired by “lessons learned from the Covid-19 pandemic”.
In the views expressed in the draft policy document of the European Commission (EC), officials warned of the current over-reliance “to ease financial tensions and stability risks.” Prior to the release of the latest news, the EU “has long sought to promote greater use of the euro as the EU seeks to strengthen its financial and economic autonomy.”
However, as explained in the Financial Times report, during Trump’s presidency, the negative impact of the dollar’s dominance prompted EU leaders to take action. This is because when the US government imposed sanctions on Iran, the EU’s financial infrastructure was also at the receiving end of the dollar’s dominance.
In addition, the report stated that EU leaders, who seemed too eager to save the nuclear deal with Iran, were forced to “establish a special purpose vehicle (SPV) to facilitate payment for legal trade between the EU and Iran.” Nevertheless, the SPV Difficulties are still encountered, and this part has prompted European leaders to take action. The EC document says:
If a third country forces EU-based financial market infrastructure to comply with its unilateral sanctions, the EU should develop measures to protect EU operators.
After the United States re-imposed sanctions on Iran, the impact of sanctions on European financial infrastructure was direct. For example, the “fast payment messaging system, Euroclear and Clearstream securities depository” are all affected.
At the same time, the EC policy document lists some specific steps that the EU needs to take. These steps include “including a planned review of EU financial benchmark regulations to encourage them to be denominated in euros.” Currently, many of these benchmarks are based on U.S. dollar denominated.
In addition, EU policymakers also hope to find energy alternatives to crude oil, because “main benchmarks such as Brent and West Texas Intermediate are pegged to the US dollar.”
Finally, EU leaders hope that the euro will play a greater role in the world, which will “ensure the economy from foreign exchange shocks and reduce dependence on other currencies.”
Do you think the European Union will succeed in making the euro stronger? You can share your opinion in the comments section below.
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