Something unusual is happening in the middle of a large market instability caused by Trump’s insane announcement of customs.
It is common that in such situations of chaos investors seek refuge in what is considered the safest – dollars and American state debt. This usually leads to the growth of dollars and falling interest rates, writes Ryan Cooper, author of prospect.org.
This time occurs opposite: the dollar weakens compared to other currencies, while interesting on American debt is growing. For now, these shifts are moderate and it is possible to reflect only market chaos. However, they indicate probably the weakening of confidence in the dollar as a global spare currency – what, keeping in mind Trump’s summary behavior, and should not be surprised. A country who chose the senile, criminal lunatic twice, can hardly enjoy global trust.
This opens a unique, perhaps a centuries-old opportunity for the European Union – to offer this stability and security to investors and governments, and to take over at least part of the status currently has a dollar. But that will not happen alone – it will require that the EU will reject its traditional aversion for borrowing and printing money.
Time for euro
The spare currency is the one used for international transactions. Today, the dollar makes up about 60% of global foreign currency reserves, while the euro holds about 20%. Many have been predicting collapse of dollars for years, disgusted by American obsession by reducing taxes with rich and growing public borrowing. However, that is exactly why the dollar is globally dominant – because the currency would be usable on a global level, must be available in huge quantities, investor me. Huge American debt means trillion dollar bonds available worldwide.
That is why the American government has so far able to borrow cheap, despite a huge debt. But how to explain Michael Petis II Metja Klein in the book “Trade wars are class wars”, that “excessive privilege” has a high price. High demand for dollars raises his value and makes American exports non-competitive – which, together with low salaries in countries in which companies have moved production, contributed to the USA. In addition, the United States, through the IMF and the World Bank, imposed measures for saving developing countries – by piling them to accumulate dollars as a defense, which is an additional strong dollar exchange rate.
New European Strategy
The current, probably multi-trillion weapon program and EU reinvestment could be funded by almost free.
Realization of the backup currency also carries responsibilities. During the crisis in 2008. and Pandemic Covid-19, the American Fed enabled central banks in Germany, France, Japan and other countries access “Swap Lines” – Factically enabled to print dollars. The Allies knew that the Fed would save them if the crisis appeared.
This may sound as if the irreplacability of the dollar is a bad thing for the EU – but in fact, the dollar replacement would bring many benefits. The EU could take a series of smart steps and position the euro as a backup currency, without compromising their own industrial base.
According to the Silvie Merler economist, the Key Strategy would be issuing a large amount of EU bonds – not individually by members, but with a joint guarantee of the entire Union. Instead of, such as the US, the funds are spent on tax reliefs for rich, the EU would focus them on the renewal of defense capacities.
During the EU Pandemic, it has already broadcast 600 billion euros of bonds, and an additional 150 billion planners for defense purposes. The demand is huge – the average EU bonds are overpaid 8.3 times, and interest rates are lower than most members. They would be even more attractive if they were accompanied by the Fiscal Alliance (not only monetary), starting at least from a joint fund funded with small taxes from all countries. However, part of the pandemic bonds soon emphasizes, so a new show will be needed – in Trilionic amounts – that the euro could replace the dollar.
Europe as a protector of global stability
This could even be the question of European self-defense. In the case of a new global financial crisis, everyone would turn to the euro in the panic – what the price would dizzically jump. Therefore, the ECB should establish its own swap mechanisms – clear, formal, not ad hoc as American – to prevent nervousness and excessive piling in euro that would harm export.
Of course, huge political obstacles are up. Especially Germany is historically allergic to borrowing, printing money and fiscal union. (It is also the reason why European democracies have not implemented a “new agreement”
