Lagarde: “The strength of the euro as a currency depends on EU’s military power”

Brussels – A strong euro as a response to the turbulence of today’s world. An appreciation of the EU’s single currency that passes through new commercial and military impetus. In other words, more free trade agreements and more European integration in defence. The President of the European Central Bank, Christine Lagarde, does not mince her words. “Trade and military power are important to establish the demand for an international currency,” she said, speaking at the Jacques Delors Centre Berlin.

The ECB’s number one forcefully relaunches two concepts that she herself expressed at different times. The first links heavy industry support to economic growth. The issue is certainly one of accounting, employment, and production: an expansion is and remains an expansion, and defence is no exception. Decimal points of additional GDP, with all the spin-offs. The second concept was expressed in the US administration’s trade choices: the ECB line is to refrain from tariff wars and respond with new agreements with other partners.

Lagarde keeps coming back to both issues. She mentions the US change of course, and reminds that compared to other historical moments, “there is one fundamental difference from previous eras”, and that is the single currency. “With the euro as the second-largest currency in the world, there is another international currency along with the dollar. But this has not yet convinced investors”. The EU must make the euro the new choice, and trade is the first way.

The EU, recalls the Eurotower president, “has the largest network of trade agreements in the world”. It can claim and boast to be “the number one trading partner for 72 countries, which together account for almost 40 per cent of the world’s GDP”. This status is reflected in the share of the euro as a billing currency, which “stands at around 40 per cent.” Therefore, Lagarde emphasises, “Europe can drive this advantage home by continuing to forge new trade agreements”.

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But, she warned in her speech, “there is a limit to how much a currency can grow simply by virtue of being open for business”. That is where the defence issue comes in. “Investors, and in particular official investors, also seek a geopolitical guarantee in another form,” Lagarde points out. Who then clarifies: “They invest in assets in regions that are reliable security partners and can honour alliances with hard power.” It follows that “a credible geopolitical foundation must also rest on strong military partnerships“.

This dual strength—commercial and military—”is essentially what we can learn from the dominance of the US dollar,” continues a convinced Lagarde. “It is not only a product of economic fundamentals, but it is also strongly reinforced by security guarantees.” As the US has done, so can the European Union, a message and encouragement from the ECB’s number one. “We are witnessing an important shift in Europe towards rebuilding our hard power, with important initiatives at a community and national level. And we should be clear that following through on this effort is a preliminary condition for the euro to become more widely used.”