May 30, 2019
US threatens Instex
Instex was the EU's knee-jerk reaction to the decision by the US to impose secondary sanctions against companies and banks that do business with Iran. It is not operative yet, and it is becoming clearer by the day that this is a doomed venture. Bloomberg has the story that US the Treasury Department’s undersecretary for terrorism has written a letter to the president of Instex that he and his institution would be subjected to US sanctions if Instex were to start operating. The latter came after US officials realised that the Europeans were more serious about Instex than they had let on in bilateral conversations. The latter was intended to serve as a maximum-impact threat against Instex itself, its staff and anyone associated with it - i.e. the governments of Germany, France and the UK - and all financial institutions that may be directly or indirectly fund it. It is unsurprising that this would happen.
We liked the comment of Mathieu von Rohr of Der Spiegel, who noted dryly that the US was threatening penalties against an inoperative entity. We can only assume that the whole purpose is to make sure that Instex will forever remain an empty shell. European governments did not think this through. The EU has no effective instruments at its disposal right now to defend itself against US financial unilateralism, a point Wolfgang Munchau expanded upon his last FT column. But it has the option to develop one: to cement the euro's international role with a unified capital market and a single European safe asset. This would allow the EU to share at least some of what is currently the dollar's exorbitant and sole privilege, the deep reason why the US has the power to impose secondary sanctions and why others do not. This exorbitant privilege was the direct result of the post-WWII economic order. But its persistence until today is a sin of omission - a European omission.