US President Donald Trump is doing his best to reshape the global financial system in accordance with American interests, claiming to be an unfair system and work against the United States, but amid this “economic chaos”, Europe sees an opportunity to enhance its financial and economic interests, according to a report published in the Politico Journal of Jacobo Barighazi.
During the recent European Union summit, European Central Bank President Christine Lagarde urged European leaders to expedite the establishment of a unified financial market, to attract investors looking for alternatives to the US financial system, according to a European diplomat informed on closed talks.
Her message was clear to the heads of government gathered, “Stop wasting time, now is the time to move.”
Old ambition
Since the euro launched, policymakers have sought to undermine the dominance of the dollar on global financing and trade, which gives the government and American companies a lower cost, which is an essential advantage in light of global competition for capital, but so far, the European currency has not been upgraded to the level of expectations, according to the writer’s report.
The report quoted the Supreme Administrative Director of the sovereign assets of Kabra Credit Code, Joan Feldbum-Fadra, as saying that the dollar represents about 90% of global transactions, and the criterion in which other currencies is measured.
The European Central Bank’s report for 2024 explains that 60% of foreign bonds are valued in dollars, compared to only 20% for the euro, which has remained fixed for a decade.
The dominance of the dollar dates on the international financial scene to the end of World War II, when the United States strengthened its position through the “Bretton Woods Agreement” in 1944, which was placed at the heart of a global system for fixed and adjustable exchange rates.
Its control was established thanks to the United States’ position as a great military power, the size of its economy, strength and vitality, and the consolidation of the “Wall Street” position as a global financial center. By 1964, the dominance of the dollar was the one that prompted French Finance Minister Valerie Giscar Diskan to talk about the “exorbitant feature” of the currency.
Despite the collapse of the Bretton Woods regime, the United States’ continuous ability to attract capital included the survival of this privilege, and even its increase, according to the report of the Politico magazine.
https://www.youtube.com/watch?v=r6-h9ntexs
Chaos everywhere
According to the report of the Politico magazine, the European Union – in theory – can compete with the United States with its great economy, mature banking cutting and active law, while practically, despite talking about an internal market, the financial system is still partial to 27 different national sectors.
The President of the European Central Bank, Christine Lagarde, urged policy makers to move forward in border integration, and investors, who are concerned about political fluctuations in the United States, may resort to European assets as a safe haven.
The US President’s campaign to impose customs duties and indicators began to overcome the borders of the executive, affect the American economy. The Standard & Poor’s 500, the broader decline, decreased, and has decreased by more than 10% since Trump took office. Small business owners’ confidence is also a continuous decline.
Amid this chaos – the report says – Europe sees an opportunity to attract investors looking for safe and more stable financial havens.
In this context, Lagarde indicated that the purchases of foreign investors from American bonds decreased, as their net investments recorded an unexpected decline, and even turned into negativity in January, which reflects the vibration of confidence in the American financial system, according to the description of the writer Jacobo Barighazi.
Lagarde stressed that Europe needs a deeper financial integration to enhance its attractiveness for investors, considering that the current economic conditions may push investors and capital towards searching for safe alternatives away from the dollar.
Obstacles in front of the rise of the euro
Despite the opportunity of Trump’s chaos, there are still great obstacles to the rise of the euro. The European Union, despite its strong economy and mature banking cutting, suffers from a financial regime between 27 countries, which weakens its ability to compete with the unified American regime.
The size and depth of the American debt market is a major challenge, as the value of US Treasury bonds is $ 28.6 trillion, which makes it a major tool in trading, as well as being a basic pillar in the global financial system, says Politico.
On the other hand, Europe does not have a similar debt system, as the common bond versions of the European Union are still irregular, and the total European Union’s joint debt is only 578 billion euros, which is a small number compared to the size of US debt.
https://www.youtube.com/watch?v=rxmjdekqmmy
But analysts agree that any talk about replacing the dollar system is premature, and the report of the Politico magazine reported on the global president of the macroeconomic economy at the bank of the bank, Carsten Barzeski, as saying, “Over the past decades, we have seen several occasions announced at the end of the dollar. But that has never happened.”
Among the obstacles referred to by most analysts is the size and depth of the US government debt market, and the total value of US treasury bonds circulated is $ 28.6 trillion.
The American debt in the financial markets works somewhat similar to the method of cash for ordinary individuals, and banks and investors use treasury bonds to circulate between them and to keep them as guarantees, and the debt is an essential pillar in the financial system.
Reducing the value of the dollar
Media reports indicated that the Trump team is studying a plan to reshape the global financial system, by intentionally reducing the value of the dollar in cooperation with the allies, in what is known as the “Mara-Logo Agreement”, with the aim of enhancing the competitiveness of American exports, according to the report of the Politico magazine.
But Lagarde has reduced the importance of this idea, describing it as merely “unconfirmed speculation”, and at the same time warned that Europe should be ready for any possible scenario.
