Brussels: Europe and the Arabs
Amid global economic turmoil and escalating US protectionist policies, an unexpected opportunity has emerged for Europe to strengthen the euro's international standing. Will Trump's tariffs lead Europe toward a stronger economic role and greater financial independence? The answer to this question came in a report published Wednesday morning by the Brussels-based European news network Euronews, which stated that at a time when the world is witnessing escalating geopolitical turmoil and successive economic fluctuations, a glimmer of hope appears on the horizon that could alter the balance of economic power: a potential rise in the role of the euro on the global stage.
As US President Donald Trump continues his escalation with controversial tariff policies, imposing tariffs on several countries, serious questions are being raised: Will this open the door for the single European currency to play a greater role as a competitor to the dollar? On April 2, Trump's announcement of sweeping tariffs sent global markets into a tailspin, triggering a sell-off even in the United States, marking the largest market decline since the 2020 COVID-19 pandemic crash.
Since then, investors have been gripped by anxiety, rushing to safer assets like gold, a sign of mounting economic uncertainty.
Despite the negative media coverage of Trump's economic policies, this turmoil could hold potential gains for Europe, particularly for the euro, the second-most widely used currency globally, representing about 20% of foreign exchange reserves, compared to 58% for the dollar.
Foreign exchange reserves are strategic tools held by central banks, such as the European Central Bank and the Bank of England, and are used to maintain currency stability, protect the national economy in times of crisis, and pay for essential imports such as energy and food. With increasing volatility in the global financial system, European decision-makers may find themselves faced with a historic opportunity to reshape the international monetary landscape and enhance market confidence in the euro as an alternative and stable reserve currency.
How can a stronger euro protect Europe's economy and reduce dependence on the dollar?
Christine Lagarde, President of the European Central Bank, believes that strengthening the euro's role in the global monetary arena could have long-term strategic benefits for Europe.
In her speech at the Hertie School in Berlin, Lagarde explained that increasing the euro's share of global foreign exchange reserves would give EU governments and companies a significant financing advantage, allowing them to borrow at a lower cost, supporting sustainable economic growth and encouraging long-term investment flows.
Lagarde indicated that adopting a stronger local currency would reduce Europe's exposure to global market volatility, as recently witnessed as a result of Trump's trade policies, giving the European bloc greater monetary independence.
With increased trade transactions denominated in euros, exchange rate volatility would decline, making the continent more immune to coercive economic measures that could be imposed by competing global powers. Lagarde draws a pivotal point in this context, stating that many governments around the world fear the political repercussions of holding large US dollar reserves. This reality sometimes makes them willing to accept unfair trade deals to avoid American wrath. Conversely, the widespread use of the euro as a reserve currency will give Europe greater influence on the global stage and make it an indispensable economic partner.
How can the euro surpass the dollar as a reserve currency?
Lagarde also pointed to three necessary steps to strengthen the euro's global standing.
First, Europe needs to consolidate its geopolitical stability and ensure that its trade remains open. The challenge lies in the political divisions among member states, particularly on issues such as migration, EU membership, and support for Ukraine, which threaten the unity of the European position. According to Lagarde, it is essential for European countries to adopt a unified approach that prioritizes political stability, as investor confidence is built on institutional coherence, clear policies, and a corruption-free environment.
Secondly, Lagarde emphasized the need to improve Europe's attractiveness for investment by reducing obstacles facing companies in obtaining financing and easing listing requirements on European stock exchanges. She also called for harmonizing laws across member states to reduce time and costs, as well as providing incentives for long-term investment, such as pension reform. These reforms would encourage international investors to inject more capital into European companies and relocate their operations there.
Thirdly, Lagarde emphasized that the European Union needs a strong defense structure to protect it from external threats, enhancing investors' sense of security when investing heavily in an economically and politically stable region.