The Euro vs Dollar Debate: A Review

This Working Paper provides a comprehensive and multidisciplinary literature review on the euro vs dollar debate. In the first part it presents the euro-optimist and the euro-sceptical hypotheses on the euro’s challenge to the dollar within Economic literature and how current data show how the euro has underperformed vis-à-vis euro-optimistic expectations. In the second part, drawing on the International Economics and International Political Economy (IPE) literature, the paper explains the euro’s political flaws. It shows that a currency can only become the top international currency if there is an active political commitment by the issuing authorities to make it the leading currency. The paper shows how existing IPE literature offers a very accurate picture of the structural conditions of the international monetary system. Where it lacks nuance is in identifying the social impact of the euro. The last part of the paper focuses on these social dimensions. Following a constructivist approach, it shows how the euro has become a truly global currency in the social sense and how key financial agents are gradually seeing an evolution from a unipolar system dominated by the dollar to a bipolar system where a mildly descending senior pole (the dollar) and a mildly ascending junior pole (the euro) compete against each other

La crisis del euro vista desde fuera: pesimismo unipolar estadounidense frente a optimismo multipolar de los emergentes

Razones históricas y geopolíticas explican por qué las elites estadounidenses son escépticas en relación al futuro del euro, mientras que las elites de los países emergentes prefieren ser cautelosamente optimistas. Tanto EEUU como los países emergentes están interesados en un euro fuerte. Sin embargo, mientras los americanos, desde su posición privilegiada de mando, dudan del éxito de la moneda europea, los BRIC desean que ésta se consolide como un primer paso hacia la consolidación de un mundo más multipolar. Esta crisis ha enseñado con claridad las limitaciones institucionales del euro, pero también ha demostrado su importancia en el sistema monetario internacional. Ni los estadounidenses ni los emergentes se pueden permitir el lujo de dejar caer el euro. Los primeros lo han demostrado con palabras de apoyo, los segundos, sobre todo las autoridades chinas, con palabras y con inversiones

Italy’s struggle with the euro straitjacket

Paolo Gentiloni took over from Matteo Renzi as Italian Prime Minister in December, but the country’s politics remain volatile amid infighting within Renzi’s Democratic Party and calls from the Five Star Movement for a referendum on Italy leaving the euro. Miguel Otero-Iglesias highlights the widespread anger some voters feel toward the EU and Germany, but suggests that even if Grillo were to win the next election an ‘Italexit’ would be unlikely

Germany and Political Union in Europe: Nothing moves without France

This paper attempts to understand why after two decades proposing the creation of a political union to make European monetary union (EMU) sustainable, Germany has not utilised the ‘window’ offered by the Eurozone crisis to pursue more vigorously this goal. Using the conceptual devices of the Chartalist understanding of money and hegemony, three possible explanations are explored. 1) Germany is slowly becoming a ‘normal’ European power and has started to favour the intergovernmental to the community method. 2) The German public has lost its enthusiasm for European integration, especially after realising how the proposed banking union has brought the spectrum of a ‘transfer union’ closer. 3) Germany remains a reluctant hegemon and once it has seen that France is still not ready for political union it has refrained from actively promoting this ideal. The conclusion of the paper is that the first two explanations have some merits, but that the third one continues to be the most convincing. The zeal by which the German political elites, supported by their public opinion, have pushed through the Spitzenkandidaten logic in the 2014 European elections confirms that Berlin is still determined to build a more federal Europe. The question is rather whether Paris is ready to participate in this endeavour

Intentionally or otherwise, Schäuble has killed off the prospect of a Grexit

One of the more controversial ideas put forward during the Greek debt crisis has been the suggestion by the German Finance Minister, Wolfgang Schäuble, that Greece could temporarily leave the Eurozone for a period of five years. Miguel Otero-Iglesias writes that while the idea itself has been widely criticised, the hard-line taken by Schäuble, and the subsequent U-turn by the Greek Prime Minister Alexis Tsipras, has paradoxically reduced any real potential for a Grexit to take place

The Internationalisation of the Renminbi: Prospects and Risks

By looking at how far China has gone in internationalising its currency, the Renminbi (RMB), it is possible to identify the main strategic goals that China wants to achieve through this process, along with the main risks that such an objective embodies. It can be said that so far the gradual internationalisation process of the Chinese Renminbi (RMB) has been successful. The Chinese approach of crossing the river by feeling for the stones underwater has proved to be adequate. While it is commonly believed that a currency can only become international when it is fully convertible, Hong Kong and the RMB might prove the contrary. Nonetheless, there are several risks lying ahead. So far the internationalisation process has developed smoothly because the waters of the river have been relatively shallow, but once they deepen proportionally to the amount of RMBs that are in circulation overseas, the journey might not be so easy

A new Eurotreasury could help the Eurozone’s periphery to regain its economic sovereignty

The establishment of the euro meant that for the first time in history, the national monetary policy of many European countries became pooled at a transnational level. Miguel Otero-Iglesias writes that a consequence of this is the movement of economic sovereignty towards Berlin and Brussels, and away from the Eurozone’s periphery. He argues that greater economic union combined with a new Eurotreasury, focused on growth and stability, would give more voice to debtor countries and also might help to stem the tide of Euroscepticism that is currently creeping across Europe

We should be wary of removing the ECB from the troika to facilitate the use of outright monetary transactions

A key legal debate in the context of the Eurozone crisis is whether so called ‘Outright Monetary Transactions’(OMT), which would allow the European Central Bank (ECB) to buy unlimited numbers of government bonds in secondary markets, are compatible with European law. The latest development in this debate came last week when one of the Advocates General of the European Court of Justice (ECJ), Pedro Cruz Villalón, stated that in principle OMT would be legal under the correct conditions, which include removing the ECB from the ‘troika’ which oversees financial support to Eurozone countries. Miguel Otero Iglesias writes that while the ECJ is not expected to give a full ruling until the autumn, political leaders should be cautious about removing the ECB from the troika without creating a new institution capable of filling its role

¿Puede el euro competir con el dólar?: una mirada desde los BRIC

Por el momento, para los BRIC (Brasil, Rusia, India y China) el euro no es ninguna amenaza para el dólar desde el punto de vista material. Sin embargo, en el ámbito de las ideas sí que ha cambiado el statu quo del sistema monetario internacional. Este ARI es un resumen de un estudio centrado en cómo las elites financieras de Brasil y China perciben la rivalidad entre el dólar y el euro en la lucha por convertirse en la moneda internacional del sistema. Las más de 40 entrevistas realizadas indican que estas elites están descontentas con el dólar, pero también dejan claro que el euro, por ahora, no es rival para la moneda estadounidense, sobre todo por la falta de un mercado de deuda pública integrado. En este sentido, el impacto material del euro en Brasil y China ha sido limitado. Sin embargo, la influencia en el plano de las ideas ha sido considerable. Las elites brasileñas y chinas ven la Unión Monetaria Europea como un modelo a seguir en sus respectivas regiones. El euro ha demostrado a estas elites que la regionalización, e incluso la mundialización, monetaria es posible y, sin quererlo, ha iniciado una carrera por ganar espacios geo-monetarios fuera del dólar en la que los europeos han iniciado con cierta ventaja pero si no se unen pueden quedarse atrás en poco tiempo

Coverage of the Commission President candidates in the Spanish media shows the Spitzenkandidaten process had a wide reach across Europe

The proposal of candidates for President of the European Commission prior to the 2014 European Parliament elections was criticised by the British government on the grounds that it did not fully engage European citizens. Miguel Otero-Iglesias and Kristina Lani assess the coverage of the process in the Spanish media, illustrating that the candidates received just as much attention in Spain as they did in Germany. They also note that Spanish public opinion on the use of Commission candidates grew more positive during the campaign, suggesting that media coverage may have played a role in enhancing support for the process