It’s time to shine the euro

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Through the fog that has wrapped global markets during the second coming of US President Donald Trump, a form is beginning to take shape. If you strengthen your eyes, you can make a summary of how Europe can set up a challenge for the centrality of the dollar in global finances and how it could be the reform of its unique government bond markets.

This will be a long, stuttering process and sometimes exasperating. It is Europe, after all. But the question of whether to give a brightness to the euro and make it more appropriate for world official reserves is over. The answer is yes. Now comes how.

A possible answer is doing nothing. The Eurozone could use its imperfections for its advantage. Instead of offering a huge bond of the unified government backed by each member and the food spending in each state, it could comply with what it already has: a loose collection of national bond markets with different sizes, flavors and measures evaluated externally of their safety. Some great investors such as that variety, and it could be possible to sell it as a virtue for managers backed by the state of large cash groups worldwide.

But “power” is doing a serious heavy job there. This opinion has its merits, but the Eurocrats of most flavors, and bankers within the EU, are generally putting more effort to think about how to better join forces and set up a significantly larger, slower and faster market challenge for the United States government bonds. This is clearly a live debate.

“We have this permanent discussion about joint loans,” said Michael Clauss, German ambassador to the EU, at a Financial Times event in Berlin this month. “There was never a meeting [of government representatives to the EU] that I remember in the last 12 months or so without mentioning the bonds in euro or making ideas for joint loans, ”he added, a wink to how this is not only a response to Trump, but a broader debate on how to finance European defense.

Ultimately, this will be a political decision. But the support drum to Europe to make its movement here is increasingly strong, even the president of the European Central Bank Christine Lagarde, who wrote this month at the “global European” moment. In part, as Lagarde explained, that is based on the already important role of Europe in global trade and the use of the euro as a billing currency, a role that should continue to increase.

This is often overlooked but greatly important, since the even greater function of the dollar as a global billing currency goes hand in hand with its portion of global reserve assets. “It’s not just an administrative decision” to incline reservation assets away from dollars, said Fiotakis, currency analyst in Barclays, in an informative session this week. “It’s not ‘Oh, I’m angry with President Trump, I’m going to take revenge buying euros.” Instead, he said that this follows an “old recipe” to save rainfall funds to provide liquidity to maintain trade flowing in a crisis. Logically, then, more trade in euros outside of Europe would feed a stronger case for more euro reserves.

Once again, however, we return to where those reservations would go and what could be the dominant euro asset. On that question, the chief economist of the BCE Philip Lane this month caught the attention to a frame of “Bond Red/Blue Bond” that will first outline 2010.

This would involve the Member States of the euro that would annul a income flow and use it to attend the common “blue” bonds, whose income would be used to buy a part of the national “red” “red” bonds.

The idea did not take off in 2010, due to lack of political support and for a good reason. At that time, a bus could drive through the holes between the indebtedness costs of the safest members of the euro, especially Benchmark and Bedrock Germany, and those of the weakest ties such as Italy, not to say anything in states in complete solvency crisis. Given those differentials, why should Germany register in irrationally high costs? It was quite difficult to keep Greece in the eurozone without adding another layer of probable dispute.

Now, however, differentials have almost disappeared. As Lane says, the “financial architecture” of the euro is much more robust, its banking system is better capitalized, a variety of imbalances has been resolved. That means that it continues, “the structural changes in the bond design of the Euro area would promote greater global demand for safe assets called in euro.”

Some bankers sniff that the Banking Union of Europe is imperfect, its capital market union is a failure and insolvency laws remain incompatible from one state to another, and the United States simply works. All that is true, but the idea of ​​the “blue” bonds, also announced by the heavy weights of Olivier Blanchard and Ángel Ubide in an article for the Peterson Institute, at least provides the possibility of not allowing the perfect thing to be the enemy of the good.

Blue links may not end up being where all this lands. But in one way or another, the moment is the correct one that European politicians understand this Ortiga. It is remarkable that the discussion has gone from admiring the problem that Europe hits below its weight, to discover how to solve it.

katie.martin@ft.com