Europe Pushes to Expand Euro’s Global Role Despite Currency Value Concerns

European Union leaders are intensifying efforts to increase the euro's international usage as tensions with the U.S. grow. However, economists warn that expanding the euro's global role could lead to currency appreciation that might hurt European exports and economic competitiveness.

LONDON – European Union officials are accelerating plans to strengthen the euro’s position in global markets, but financial experts caution that this strategy could result in unwanted currency appreciation that may damage the region’s economic competitiveness.

The renewed push comes as transatlantic relationships deteriorate, particularly after European Commission President Ursula von der Leyen spoke of boundaries that “cannot be uncrossed” following President Donald Trump’s interest in acquiring Greenland.

During last week’s informal EU summit, held alongside the Munich Security Conference, European leaders reinvigorated discussions about deepening capital market integration across the continent. The agenda included potential expansion of shared euro debt issuances and broader global access to euro financing, with the European Central Bank leading Saturday’s initiatives to increase worldwide euro liquidity.

While these concepts have been previously considered, there’s now clear urgency for implementation. Officials are prepared to move forward with a two-tier approach, where six primary nations – Germany, France, Italy, Spain, the Netherlands and Poland – would lead if reaching consensus among all 27 member countries proves too difficult or time-consuming. An EU6 summit is scheduled for early next month.

These measures appear essential, though potentially insufficient, for expanding euro influence and providing alternatives to dollar dependency during a period of significant U.S. political and economic turbulence.

However, whether increased global euro adoption will trigger unwelcome currency strengthening remains uncertain.

Financial leaders on both continents are examining possible shifts away from dollar dominance in international reserves, trade transactions, billing practices, and commodity markets, though they hold different views on exchange rate consequences.

The Trump administration views dollar strength primarily through the lens of the currency’s extensive reach and widespread use in international finance – representing an extension of American influence separate from exchange rate fluctuations. The administration likely sees reducing the dollar’s overvalued exchange rate as essential to its global trade restructuring goals.

Currency specialists, including Cornell professor and former International Monetary Fund official Eswar Prasad, believe gradual dollar weakening is achievable without undermining its international prominence.

In his recently published book “The Doom Loop,” Prasad argues that dollar dominance, while persistent due to momentum and scale factors, may be contributing to increasing global economic instability. Should this instability peak, the search for viable alternatives would intensify, as evidenced by gold’s recent dramatic price increases.

“While dollar dominance might prove a saving grace at times of crisis, it is that very dominance which has a destabilizing effect worldwide,” Prasad wrote. “It exposes other countries to the mercurial and often undisciplined economic and financial policies of the United States.”

European officials clearly aim to enhance the euro’s international role but are considerably less enthusiastic about potential currency appreciation, primarily because it would undermine export competitiveness during uncertain global trade conditions and further suppress inflation in the slower-growing region.

Similar to their American counterparts, Europeans desire the “exorbitant privilege” of operating a major reserve currency without the inflated exchange rate that might accompany it.

If U.S. officials would accept gradual dollar decline in foreign exchange markets alongside only modest reduction in actual dollar usage, would Europeans embrace the opposite scenario?

AXA Group Chief Economist Gilles Moec contended this week that while separating exchange rate effects from global usage is theoretically sound, any substantial shift would likely impact euro valuation.

Moec referenced the previous transition between dominant reserve currencies more than a century ago, when the British pound yielded prominence to the dollar between the world wars, noting that the dollar strengthened during this period.

Despite unsuccessful U.S. attempts to prevent this rise by devaluing the dollar against gold, he explained, global investor demand for the emerging reserve currency ultimately prevailed.

“Our point here is that the European Central Bank cannot completely disconnect its support for an upgrade in the euro’s global role from monetary policy,” Moec concluded.

The positive aspect is that a “more assertive role” for the euro could benefit the EU by generating consistent foreign investment flows into euro-denominated assets when Europe requires such capital. Additionally, a stronger euro might facilitate transition from export-dependent growth to domestically-driven economic expansion.

“To ease the transition, though, a flexible monetary policy would be necessary to avoid a too brutal decline in competitiveness,” Moec concluded.

If Europe now believes it must also cross irreversible boundaries, then perhaps accepting these consequences is unavoidable.