20 years following the launch of the single currency, the euro has become the second most important currency in the world. In 2018, the European Commission has started an initiative for a critical reflection on the international role of the euro considering the future of EU27 after Brexit as well as the approaches still to be completed behind the Eurozone and Capital Markets Union (CMU).

Objective

Recent shifts in global political and economic powers have pushed the European Union to identify ways that promote a more diversified and multipolar system of several global currencies, reflecting the euro area’s economic and financial weight. This would also make the international economy more resilient to shocks.

The European Commission has outlined a broad and comprehensive set of initiatives to increase the trust and attractiveness of the euro. It includes the following aspects:

• Completion of the Europe’s Economic and Monetary Union, Banking Union and CMU
• Measures to foster a deep European financial sector
• Initiatives linked to the international financial sector
• Promoting the use of the euro in key strategic sectors

We at Deutsche Börse Group have warmly welcomed the vision set out in the Political Guidelines of the new European Commission and notably their goal to establish the EU27 as a competitive and prospering economic area supported by financial markets built on principles of stability, transparency and fairness. 

Strengthening the international role of the single currency may be done through different paths: directly, by increasing the trust and attractiveness of the currency itself; and indirectly, by supporting products and services denominated in euro as well as the Eurozone’s financial ecosystem. 

Increasing trust in euro will require the aforementioned reform of the Eurozone with regard to the Economic and Monetary Union, completing the Banking Union, as well as progressing on CMU. In addition, based on a “fit-for-purpose” regulatory framework, market-led solutions can make a key contribution by providing for a virtual symbiosis between stability and growth enhancement. Thus, boosting the use of the euro in key strategic sectors, such as for example in commodity markets, will make a significant contribution to making the EU more resilient to shocks and more attractive for investments.

In the context of the Covid-19 pandemic, the initiative of strengthening the role of the euro plays also a major role for a sustainable recovery and financing of the European economy. For example, a recovery programme, including the issuance of joint debt, as proposed by the European Commission in May 2020, would increase the supply of safe assets denominated in euro and help strengthen the resilience and the sovereignty of the Eurozone and ultimately the international role of the joint currency.

Time line

On 5 December 2018, the European Commission published its communication “Towards a stronger international role of the euro”. It outlines the work streams mentioned above to increase the trust, usage and attractiveness of the euro at international level, which has been welcomed by the Finance Ministers of the Eurozone in January 2019.

Along the different work streams, the European Commission had launched a series of open public consultations between January and April 2019 in order to collect and gather feedback from a variety of sectors and actors to better understand the mechanisms which underpin the use of the single currency. The results of the feedback received were published in June 2019, highlighting the need for coordinated action, including considerations for next steps in specific sectors. 

The initiative on the international role of the euro is expected to provide an important impetus for the overall planning of the Commission and the regulatory priorities for the current legislative period – preparing for a post-Brexit world and completing the Eurozone reforms as well as the CMU. 

Against the background of the European Commission’s focus on strengthening Europe’s sovereignty, many of the elements of its Work Programme 2020 are therefore connected to the initiative, such as proposals that have been brought up in the context of the upcoming MiFID II/MiFIR review, as for example in relation to the commodity markets regime, or the European Union’s recent strategy on energy system integration. Finally, the closely related action plan on the CMU is planned by the European Commission for Q3 2020 and could also provide a first insight into the next steps to be taken.

International role of the euro: the highlighted parts of the value chain are affected