This article is an on-site version of Free Lunch newsletter. Premium subscribers can sign up here<\/a> to get the newsletter delivered every Thursday and Sunday. Standard subscribers can upgrade to Premium here<\/a>, or explore<\/a> all FT newsletters<\/p>\n<\/div>\n<\/div>\n<\/div>\n Greetings. You will have noticed a drumroll of stories in all parts of the FT recently about investors looking for alternatives to the US dollar, ranging from money managers<\/a> to central banks<\/a>. It makes for a moment of truth for the EU, which has long harboured ambitions for the euro to take the dollar\u2019s crown.<\/p>\n Policymakers know this. In an opinion article<\/a> for the FT, European Central Bank president Christine Lagarde declares that this is \u201cEurope\u2019s \u2018global euro\u2019 moment\u201d. But will European leaders grasp the huge strategic opportunity that has landed in their laps? If they don\u2019t, others \u2014 especially China \u2014 are ready to boost alternatives<\/a> to both the dollar and the euro.<\/p>\n Next week\u2019s European Council summit will discuss the euro\u2019s international role. So today, I address the steps the leaders need to take to make the most of this moment of truth and, in particular, the perennial question of commonly issued debt. If not now, when?<\/p>\n Lagarde writes:<\/p>\n For the euro to reach its full potential, Europe must strengthen three foundational pillars: geopolitical credibility, economic resilience, and legal and institutional integrity.<\/p>\n<\/blockquote>\n I will mostly address the second point below, but the first and the third are evidently important. Geopolitical credibility hinges, as Lagarde points out, on the EU\u2019s relevance in trading networks (where it is already a global player) and military alliances (where it is\u2009.\u2009.\u2009.\u2009not quite that). On law and institutions, the point here is that the EU\u2019s perhaps maddening legalism and democratic decision-making mean that once a commitment is made, it can be relied on \u2014 and reliability is a scarce and valuable commodity in a Trumpian world.<\/p>\n But let\u2019s focus on the economics. On \u201ceconomic resilience\u201d, Lagarde likewise mentions three ingredients:<\/p>\n .\u2009.\u2009.\u2009economic strength is the backbone of any international currency. Successful issuers typically offer a trio of key features: strong growth, to attract investment; deep and liquid capital markets, to support large transactions; and an ample supply of safe assets. But Europe faces structural challenges. Its growth remains persistently low, its capital markets are still fragmented and\u2009.\u2009.\u2009. the supply of high-quality safe assets is lagging behind.<\/p>\n<\/blockquote>\n She continues with the standard laundry list of policies emphasised in the recent reports of Enrico Letta and Mario Draghi, such as completing the single market, lightening regulation and unifying capital markets. But she pulls her punches on several crucial policy questions.<\/p>\n While she mentions the ECB\u2019s euro swap lines for select other central banks, she fails to suggest that these could be expanded to more countries or included as part of the package the EU could offer trade partners interested in closer relations. And she doesn\u2019t mention the digital euro, despite this being the ECB\u2019s prepared defence against stablecoins. As Barry Eichengreen explains<\/a> in the New York Times, the \u201cGenius Act\u201d now going through Congress could wreak havoc with the dollar monetary system by promoting stablecoins as a means of exchange (dollar-pegged crypto assets) and thereby making some forms of money risky. (Do read my colleague Philip Stafford\u2019s Big Read on the march of the stablecoins<\/a>.)<\/p>\n\n
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