How can the euro become more important than the dollar. The head of the European Bank: “Euro will not gain influence by inertia”

The Euro can become a viable alternative to the dollar, which will bring considerable benefits to the European Union, if governments will be able to strengthen the financial and security situation of the block, the president of the EURPEAN Central Bank (ECB), Christine Lagade, said Reuters.

International investors have reduced their involvement on assets in dollars in recent months, but many have chosen gold, without finding a direct alternative. This is due to the economic policy without predictability that the US practices at this time. The global role of the euro has been stagnating for decades, because the financial institutions of the European Union are incomplete, and governments have not shown inclination for a deeper integration.

“The changes in progress creates the opportunity of a” global moment of the euro “,” Lagarde said in a lecture in Berlin. “The euro will not gain influence by inertia, it will have to deserve it.”

For this, Europe needs a deeper and more liquid capital market, it has to strengthen its legal basis and support its commitment to open trade through security capacities, Lagarde argued.

The role of the dollar has been declining for years and now represents 58% of the international reserves, the lowest level of the last decades, but still far above the euro rate of 20%. A more important role of the euro must be accompanied by a larger military force that can support partnerships, Lagarde said.

“This is due to the fact that investors, and especially official investors, also seek a geopolitical guarantee in another form: they invest in the assets of regions that are trustworthy security partners and who can honor alliances by military strength,” Lagarde added in a lecture supported at Hertie School.

Europe should also make the Euro the favorite currency of companies for invoicing international trade, she said. This could be possible by concluding new commercial agreements, improved cross -border payments and by BCE liquidity agreements.

However, the reform of the internal economy of the Union could be even more pressing, Lagarde stressed. The capital market of the euro area is still fragmented, inefficient and devoid of a safe, liquid and wide asset, to which investors are going.

“Economic logic tells us that public goods must be funded. And this common funding could be the basis for Europe to increase the offer of safe assets.”

Common loans were a taboo subject for some important states in the euro area. This is the case of Germany, who fears that his own taxpayers could pay for the tax irresponsibility of others.

If Europe succeeded, the benefits would be considerable, Lagarde said. Investment entries would allow local players to borrow at lower costs, protect the European Union from exchange rates and make the immune community in international sanctions.