August 23, 2018
Chancellor says No to Maas' one and only substantive idea
A lot of what Heiko Mass, German foreign minister, demanded in the Handelsblatt article we quoted from yesterday falls into pie-in-the-sky territory - broad ambitions, not very concrete, not likely to happen. But we took note yesterday of the one and only material suggestion he made - the development of a European competitor to Swift, the international payments system. Angela Merkel yesterday came out to say that she agreed on everything except Swift. In other words, she disagrees with him on substance.
Maas' proposal was motivated by the US threat to cut off German companies involved in Iran from the Swift system. The control of the international payments system is one factor in the dollar's geostrategic role, but it is not the only one. As FAZ recalls in an article this morning, the true power of the dollar does not rest primarily on the US-controlled Swift system, but in the dollar's role as the currency of international trade (more so than as a reserve currency, we would add). The dollar is the invoicing currency of the commodities markets, and is also the trading currency of most developing countries. The article cites the example of Turkey, which used the dollar to pay for 60% of its imports while only 7% of imports are from the US itself. The share of the dollar in the trade of South Korea, Canada, Japan and Australia is over 80%.
Merkel acknowledged the difficulties posed by third-country sanctions, but said the Swift system played a crucial role in the fight against the financing of international terrorism. This is an area where the EU depends on close co-operation with the US. This co-operation might be jeopardised if the Europeans were to set up their own competing system.
Maas gave no details in his article. It appears to us that Merkel has thought this matter through more clearly than her minister. We did not get the impression that Maas was about to spend political capital on the issue. To become less dependent on the US in the area of international finance would require more than a cosmetic name-change for the ESM, or to set-up of a fledgling alternative payment systems. We have argued before that the euro's international role is naturally constrained by the eurozone's lack of debt-issuing and tax-raising capacity. And the EU's decision to solve the eurozone crisis through current-account surpluses also reduces the chances of the euro challenging the dollar as a global reserve currency.
Our conclusion is that any strategic discussion about the geopolitical role of the euro, welcome as it is, has to be much broader-based. The problem is that the European debate has various red lines as its starting point. In other words: if you accept that the eurozone shall have no common safe asset, you are wasting your time with this type of discussion.