If the Eurozone is reformed, does Trump stop?

Donald Trump's trade struggle is aimed at meeting its objectives in foreign policy. In August, the United States announced it would double its steel and aluminum import tariffs from Turkey in order to exert pressure on Turkish authorities to free an American pastor arrested two years ago on spying charges.

Early next month, the US will tighten unilateral sanctions against Iran.

Administration Trump, I know that a key source of economic leverage in the United States is the role of the dollar as the world's dominant reserve currency. The resistance to the disproportional power of America to destabilise the global economy thus requires lowering the weight of international trade, currently conducted in dollars.

Can the euro serve as a reliable alternative? Euro is the second leading currency in the world, but it still remains far behind the US dollar. Two thirds of all loans granted by local banks in foreign currency are in dollars, compared to only 20 percent in euros. Similar reports are noted for global currency exchange reserves.

European Commission President Jean Claude Juncker is eager to change that. Last month, he named “absurd” the fact that “Europe pays 80 percent of its electricity bill $300 billion a year in US dollars”, even though only about 2 percent of EU energy imports come from the US.

He later demanded that the euro become the “instrument of a new and more sovereign Europe”, and promised to make “the initiative, to strengthen the international role of the euro”. Juncker is not alone among European leaders, which recognizes how powerful a tool is as a common currency when it comes to empowering projects.

German Foreign Minister Heiko Mass has proposed that the European Union establish its international payment system. But these proposals, though ambitious, may neglect what is really needed to strengthen the euro's status. If the role of the euro in international trade has increased, so will the assets of foreign companies, and the total volume of loans in euros.

And more global trade in euros, it could make foreign banking systems very vulnerable to this currency. This means that in the case of a crisis, the European Central Bank (BQE) will have to take action, as the American Federal Reserve has done in the past.

During the 2008 global financial crisis, FED served as a global lender, agreeing to insecure exchange lines not only with central currency reserve banks, such as ECB

and Swiss Bank, but also with developing economies like Mexico and Brazil.

The goal was to stabilise the global economy, but liquidity also helped prevent domestic concerns from foreign asset sales in dollars, and to prevent foreign banks from trying to buy dollars. The ECB used a much more restrictive approach.

At the end of 2008, it began offering euros to the central banks of Hungary, Latvia and Poland, but urged them to place valuable euro paper collaterals. The ECB wanted to preserve its balance, to the uncertain exposure of the Hungarian Fort or Polish zlot.

But these countries, they had very few letters worth getting enough euros, under the original ECB conditions. It took another year for the ECB, under pressure from Austria and other countries, to place the relevant exchange lines for foreign currency collateral with central Hungarian and Polish banks.

Even now, the ECB will ensure euro liquidity only for countries considered systemically important to the euro area. This opposing approach to danger is contrary to that of the FED, but also to that of China's People's Bank, which in recent years has created a wide network of exchange lines to promote the use of reminb (also known as the Chinese junan) in trade and therefore as an international currency.

To realize Mr. Juncker's vision, the ECB will have to abandon this old mindset, and adopt FED's approach as the last international lender. However, it remains unclear whether the ECB would really be willing to leave a portion of its balance, exposed to the fate of countries outside the eurozone.

The ECB has good reason to be cautious: it lacks a political counterpart similar to US Treasury Secretary for FED. With no eurozone finance minister to co-ordinated in times of crisis, a ECB decision to help third countries -- even EU countries -- could face strong resistance.

The BEC's inauguration to create an exchange line with Hungary may be counterproductive: Hungary is already being distanced from the European Union. Eventually, the ECB decided to do the “all it takes to save the euro.

But if European leaders want to advance Mr. Juncker's vision of strengthening EU sovereignty by increasing the international role of the euro, they cannot rely on it ECB, without adequate institutional support.

Instead, Eurozone leaders should complete monetary union architecture reforms, and offer the ECB a political counterpart who would support centralised monetary policy. This is the best initial response to Trump's economic attacks. Everything else would be again a <x0... the ride of the cart in front of horse”.

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