The international role of the euro
“More action is needed to strengthen the international role of the euro. There are short-term measures we can take, but nothing replaces the credibility boost that completing our Economic and Monetary Union would produce. This would support our economies, protect our social model and make Europe’s voice heard across the world.”
Mário Centeno
Minister of Finance, Portugal,
Chairperson of the ESM Board of Governors
Chairperson of the ESM Board of Governors
Public debate and market interest in the international role of the euro rose in 2018, partly in response to a more sceptical attitude of the US towards the established multilateral system. Some observers have argued that the international monetary system could become more multipolar, where next to the dollar, the euro and the renminbi play a more significant role, thereby making the system more balanced.
“Although the euro is the second international currency, the crisis and recent tensions demonstrate that a strengthening of the international role of the euro is warranted. Delivering on Economic and Monetary Union and capital markets union is crucial. Creating a stable economic and financial environment will better protect European citizens and businesses and contribute to higher global growth.”
Alexander De Croo
Deputy Prime Minister, Minister of Finance and Development Cooperation, Belgium, ESM Governor
“Twenty years after its introduction, the euro plays an important international role. Since market participants ultimately decide on the use of a currency, it is important to ensure trust in the euro. Increasing the resilience of the Economic and Monetary Union, including the deepening of banking union and capital markets union, and strengthening the competitiveness of its Member States are key elements in this.”
Olaf Scholz
Federal Minister of Finance, Germany, ESM Governor
“The euro is our currency. It is up to us, the ministers, the politicians, to agree and implement what is required for the common currency to be strong and credible. International recognition will follow.”
Martin Helme
Minister of Finance, Estonia, ESM Governor
The European Commission, some central bank officials, and the ESM have all recently addressed the matter.[1] In December 2018, the Euro Summit encouraged further work, taking note of a related European Commission communication.[2] The summit adopted an agenda to deepen monetary union and to strengthen the ESM, both pre-conditions to strengthening the international role of the euro. Another important step is to further enhance financial market integration.
“Strengthening the global role of the euro consolidates its global economic and trade influence and reflects the euro area’s political, economic, and financial significance. This is appropriate as our work on completing Economic and Monetary Union continues, including creating a deeper and more stable European financial sector.”
Paschal Donohoe
Minister of Finance and Public Expenditure and Reform, Ireland, ESM Governor
“To strengthen the euro we need to strengthen the eurozone. So before putting the cart before the horse, we need to proceed at a quicker pace with finishing the process of banking union, establishing a mechanism to deal with regional inequalities, and much more besides.”
Euclid Tsakalotos
Minister of Finance, Greece, ESM Governor
“For more than 300 million citizens, the euro is the most tangible symbol of what we can achieve when working together. Completing banking and capital markets unions and, in the longer term, a European safe asset, will underpin confidence in our common currency for the benefit of our citizens and global financial stability.”
Nadia Calviño
Minister for Economy and Business, Spain, ESM Governor
Given the topic’s relevance, it was an appropriate time for the ESM to ask its Governors, the 19 euro area finance ministers, to share their views on the subject. You will read their individual perspectives throughout these pages.
“Increasing the international role of the euro is a matter of sovereignty and a decisive step for better protecting European citizens and businesses. This is why we need to strengthen our common currency by completing the architecture of the Economic and Monetary Union and creating a eurozone budget.”
Bruno Le Maire
Minister for the Economy and Finance, France, ESM Governor
“Twenty years from its inception, the euro has established itself as the most important international currency next to the dollar. Progress towards the completion of monetary union together with coordinated action by the euro area members is necessary to further strengthen the international role of the euro.”
Giovanni Tria
Minister of Economy and Finance, Italy, ESM Governor
“Undoubtedly, the euro has become a symbol of Europe in the world, in its 20 years of existence. It is my firm belief that its international role could and should be further strengthened as a safe and reliable currency. This will also enhance the euro area’s political, economic, and financial weight.”
Harris Georgiades
Minister of Finance, Cyprus, ESM Governor
The euro is the world’s second-most important currency, although its role suffered during the European sovereign debt crisis. About 20% of allocated foreign currency reserves are held in euros, and the common currency was used in over 30% of global payments in 2017.[3]
“The international role of the euro is primarily based on market-driven factors and reflects the credibility of the euro area. It is in our interest to strengthen the economic resilience of Economic and Monetary Union against economic shocks, to develop capital markets and to reduce vulnerability to external factors.”
Jānis Reirs
Minister of Finance, Latvia, ESM Governor
“The euro is a relatively young currency; nevertheless, it is the second most important currency in the world. This shows its potential. More confidence in the euro area economy would lead to a stronger international role of the euro. The Economic and Monetary Union deepening initiatives, especially the completion of banking union and capital markets union, as well as strengthening the role of the ESM in the Economic and Monetary Union architecture, which we are intensively working on, would also contribute to this objective.”
Vilius Šapoka
Minister of Finance, Lithuania, ESM Governor
“Thanks to the unprecedented reform efforts we have collectively embarked upon following the crisis, the euro is today firmly set on a solid footing. Its role on the international stage will unquestionably strengthen from here on, as confidence in our common currency further gains ground.”
Pierre Gramegna
Minister of Finance, Luxembourg, ESM Governor
There are several structural factors that explain why the euro is trailing the US dollar on an international scale, which can be addressed by pushing ahead with the December 2018 agenda to deepen monetary union. Euro-denominated financial markets are smaller than those denominated in US dollars,[4] and European markets are also more fragmented. Without more integrated and liquid financial markets, it will be challenging for the euro to play a stronger role in the global currency system than that commensurate with its share in world trade.
“The strengthening of the international role of the euro brings benefits for citizens and businesses alike, whilst contributing to the resilience of the international financial system, especially against exchange rate shocks.”
Edward Scicluna
Minister of Finance, Malta, ESM Governor
“A stronger international role for the euro will underpin Europe’s commitment to an open, multilateral and rules-based global economy. Increased use of the euro across the globe will enable European citizens and businesses to benefit from free and smooth trade and cheap and reliable access to finance.”
Wopke Hoekstra
Minister of Finance, the Netherlands, ESM Governor
“The euro has become the second most important reserve currency in the world. We should promote its status as a strong currency since this will contribute to the economic well-being of the euro area countries. The ESM has a role to play in this respect by guaranteeing financial stability.”
Hartwig Löger
Federal Minister of Finance, Austria, ESM Governor
When reflecting on the euro’s international role, the ESM Governors made important points. For some ministers, a strengthened international euro role is a matter of sovereignty and one that provides better protection for Europe. Others insist that work on the resilience of monetary union is the key as it is market participants who decide on a currency’s use. Most shared the view that deepening Economic and Monetary Union (EMU), and completing both banking union and capital markets union, would contribute to a stronger international role for the euro. This view is also shared by many international investors.
“The euro plays an important cohesive role in Europe. Its internationalisation will further enhance its contribution to stability and growth.”
Andrej Bertoncelj
Minister of Finance, Slovenia, ESM Governor
“The European Union is a global player. To strengthen our position in the rapidly changing environment, the euro needs to stay sound and well respected. To achieve this, we need to complete the architecture of Economic and Monetary Union, push on with structural reforms, and invest into sustainable growth.”
Ladislav Kamenický
Minister of Finance, Slovakia, ESM Governor
“Strengthening the international role of the euro should be considered more of a positive spillover effect of strengthening Economic and Monetary Union than a goal in itself. While there are benefits from increasing trading in euro among euro area actors, companies need to be able to freely choose the currency they do business in.”
Petteri Orpo
Minister of Finance, Finland, ESM Governor
[1] European Commission (2018), ’President Jean-Claude Juncker’s State of the Union address 2018’, 12 September 2018. http://europa.eu/rapid/press-release_SPEECH-18-5808_en.htm;
ECB (2019), The euro’s global role in a changing world: A monetary policy perspective‘, 15 February 2019. https://www.ecb.europa.eu/press/key/date/2019/html/ecb.sp190215~15c89d887b.en.html;
ESM (2018), ’The future of the Economic and Monetary Union and the role of the ESM‘, Speech, 28 November 2018. https://www.esm.europa.eu/speeches-and-presentations/future-economic-and-monetary-union-and-role-esm-speech-klaus-regling
ECB (2019), The euro’s global role in a changing world: A monetary policy perspective‘, 15 February 2019. https://www.ecb.europa.eu/press/key/date/2019/html/ecb.sp190215~15c89d887b.en.html;
ESM (2018), ’The future of the Economic and Monetary Union and the role of the ESM‘, Speech, 28 November 2018. https://www.esm.europa.eu/speeches-and-presentations/future-economic-and-monetary-union-and-role-esm-speech-klaus-regling
[2]European Commission (2018), ‘Towards a stronger international role of the euro’, 5 December 2018. https://ec.europa.eu/info/sites/info/files/com-2018-796-communication_en.pdf.
[3] International Monetary Fund COFER and SWIFT data, cited in ECB: The international role of the euro, Interim report, June 2018.
[4] The outstanding stock of US dollar-denominated fixed income securities, for example, is more than one-and-a-half times the stock of euro-denominated fixed income securities. And for safe assets (sovereign and SSA bonds rated AA- or above), the contrast is even more striking, as US-dollar denominated bonds account for over 70% of the outstanding stock, according to ESM estimates based on Bloomberg data.
