In light of the upcoming European Council and Euro Summit in December, the Commission presents actions to strengthen the role of the euro in a changing world.
In his State of the Union Address in September 2018, President Juncker highlighted the strategic importance of the euro and the need to ensure that the single currency can play its full role on the international scene. Supported by upcoming decisions to strengthen Europe’s Economic and Monetary Union, complete the Banking Union and advance on the Capital Markets Union, the euro needs to develop its global role and fully reflect the euro area’s political, economic and financial weight. To this end, the Commission in a Communication today outlines the benefits of such a strengthened international role of the euro for the EU and the international financial system, and proposes initiatives to boost the role of the single currency. As part of this effort, the Commission has adopted a Recommendation on the international role of the euro in the field of energy, promoting a wider use of the euro in this strategic sector.
Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue said: “The euro is a young but successful currency. The time has come for the euro to develop further its global role. The euro should reflect the euro area’s political, economic and financial weight and support a balanced, rules-based international political and economic order. Today’s proposals are there to start a journey, which can only succeed if there is a joint effort from the EU, Member States, market participants and other actors.”
Miguel Arias Cañete, Commissioner for Climate Action and Energy, said: “The EU is the world’s largest energy importer with an average import bill of €300 billion, with an open and competitive internal market. Strengthening the international role of the euro in the field of energy investment and trade will help reduce the risk of supply disruptions and promote the autonomy of European businesses. It can therefore make an important contribution to our objective to ensure security of supply in the Energy Union.”
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs said: “A wider use of the euro in the global economy yields important potential for better protecting European citizens and companies against external shocks and making the international finance and monetary system more resilient. Progress on the completion of the Economic and Monetary Union is therefore not only needed to promote growth and stability at home, it is also an important project to underpin our European autonomy in a globalised world.”
Promoting the euro’s international role is part of Europe’s commitment to an open, multilateral and rules-based global economy and trade. This comes at a time where the recent global trends, the emergence of new economic powers along with the development of new technologies are supporting a potential shift towards a more diversified and multipolar system of several global currencies.
The decision to use a currency is ultimately made by market participants and the objective is not to interfere in commercial freedom or limit choice. However, a strengthened role for the euro would help improve the resilience of the international financial system, providing market operators across the globe with additional choice and making the international economy less vulnerable to shocks. “At home”, it would also allow the European Union to enhance the protection of its citizens and businesses, to uphold its values and to promote its interests in shaping global affairs according to rules-based multilateralism. A wider global use of the euro would lower costs and risks for European businesses, as well as lower interest rates paid by households.
Initiatives to boost the role of the Euro
- completing Europe’s Economic and Monetary Union, Banking Union and Capital Markets Union. Only seven of the Commission’s 40 key proposals to the co-legislators in these areas have been adopted.
- additional measures to foster a deep European financial sector, including stronger European financial market infrastructures; solid interest rate benchmarks and an integrated instant payment system in the EU.
- initiatives linked to the international financial sector: ongoing cooperation between central banks to safeguard financial stability; increasing the share of euro denominated debt issued by European entities; fostering economic diplomacy to promote the use of the euro and providing technical assistance to improve access to the euro payment system by foreign entities, notably in the context of the European External Investment Plan.
A wider use of the euro in key strategic sectors
The Commission also calls on Member States to promote the wider use of the euro in strategic sectors. In spite of their position as large buyers as well as major producers, European businesses still trade in US dollar in key strategic markets, often even between themselves. This exposes businesses to currency risks and political risks, such as unilateral decisions that directly affect dollar denominated transactions. In this context, the Commission has adopted today a Recommendation to promote the wider use of the euro in international energy agreements and transactions. This will allow European businesses to benefit from stronger autonomy and finance themselves with reduced exposure to legal actions taken by third country jurisdictions. This will support the EU’s objective to build an Energy Union that ensures safe, viable and accessible energy supply.
The Commission will also launch a series of targeted consultations with stakeholdersand report on the results in the summer of 2019.
- The Commission will start a consultation on the market potential for a broader use of euro-denominated transactions in oil, refined products and gas.
- On raw materials (metals and minerals) and agri-food commodities, the Commission will consult with stakeholders to identify ways of increasing euro-denominated trade.
- A consultation will also be launched to investigate possible actions to promote the use of the euro in the transport-manufacturing sector.
The Commission invites the Leaders to discuss the international role of the euro during the December European Council and Euro Summit.
In his State of the Union speech of 2018, President Juncker identified a number of policies to boost the use of the euro as an international currency: “The euro is 20 years young and has already come a long way – despite its critics. It is now the second most used currency in the world with 60 countries linking their currencies to the euro in one way or another. But we must do more to allow our single currency to play its full role on the international scene.”
The euro is today the second most important international currency. Some 340 million European citizens use euro banknotes and coins every day across the euro area’s 19 Member States. Around 60 countries in the world use, will use or link their currency to the euro. It is a widely accepted currency for international payments, and a significant share of international reserves of foreign central banks and debt issuance on international markets are in euros.
About 36 % of the value of international transactions was invoiced or settled in euros in 2017. The euro represents around 20 % of international reserves of foreign central banks. This is more than the share of the euro area in the worldwide gross domestic product (GDP).
Public support for the euro has been consistently high in the EU, especially in the countries already using the euro. Europeans identify the euro as one of the main symbols of the European Union. It has brought visible and very practical benefits to European households, businesses and governments alike: stable prices, lower transaction costs, more transparent and competitive markets, and increased trade. It makes travelling and living abroad easier, interest rates low and savings protected.
Ten years after the financial crisis shook the world, the architecture of Europe’s Economic and Monetary Union has been significantly reinforced but more work remains to be done. Building on the vision set out in the Five Presidents’ Report of June 2015 and further developed in the Reflection Papers on the Deepening of the Economic and Monetary Union and the Future of EU Finances of spring 2017, the European Commission set out a roadmap for deepening the Economic and Monetary Union. Strengthening the international role of the euro is both the logical continuation and a new step in this overall agenda developed over the past four years.