Christine Lagarde wants European governments to step up their game when it comes to the euro. The ECB president told an audience in Paris on Tuesday that the 20 countries sharing the currency can’t just sit back and absorb economic shocks from other parts of the world.
That approach has problems, Lagarde said. When money floods into the euro zone looking for safety, it pushes up the currency’s value. That makes life harder for exporters who suddenly find their products cost more in international markets.
“If we strengthen the foundations of the euro now, we can transform our openness into resilience, and our weaknesses into strengths,” Lagarde said during her speech as reported by Bloomberg. She added that Europe can make sure the euro remains a strong and reliable foundation for the continent’s future, even as global uncertainties increase.
There’s an opportunity here. With Donald Trump’s US pulling back from international cooperation, some people are questioning whether the dollar should remain the world’s go-to currency. European officials see this as their chance to promote the euro.
Yet there’s been minimal progress since Lagarde referenced a “global euro moment” back in May as reported by Cryptopolitan.
The numbers tell the story.
Top-rated government bonds in the euro area add up to €6.6 trillion, which is $7.7 trillion. Sounds like a lot until you realize that’s only one-fifth the size of the US Treasury market. European stock markets? Less than half the size of what you’ll find in the US, and they’re not as good at putting money where it needs to go.
Lagarde emphasized that Europe needs to establish an environment where capital flows toward economic growth, creating a positive cycle where investment gains generate more incoming capital. She added that a more robust eurozone economy would boost the euro’s strength and credibility on the international stage.
So what needs to change? Lagarde pointed to regulations that differ from country to country, tax systems that don’t match up, and bankruptcy laws that vary depending on where you are. She also mentioned bigger challenges like high energy costs, productivity that’s not keeping pace, and the fact that countries don’t want to chip in for projects that would help everyone.
Last month, Brussels rolled out its newest attempt to get Europeans investing more. The European Commission announced what it’s calling the Savings and Investments Union. That’s just a new name for the Capital Markets Union, which has been kicking around for a while. The goal is creating a real single market for capital across all member countries.
Getting people to invest their money has been tough for Europe. Really tough. Europeans have 33 trillion euros sitting in savings. Most of that is just sitting in cash or regular bank deposits. People there just don’t take the same risks with their money that Americans do.
The commission thinks it has some answers. There’s going to be a campaign to teach people about finance. They want countries to set up incentives that encourage regular folks to open investment accounts.
But taxes are the centerpiece of the whole thing. Officials think the current tax rules are too complicated when someone wants to buy stocks, bonds or invest in funds. That scares people away. So the proposals include tax breaks for establishing savings and investment accounts, tax-free earnings on investments, and a system where taxes are only applied upon withdrawal of funds.
Here’s the catch. Taxes are controlled by individual countries, and they really don’t like giving up that control. Plus, some worry these new rules will just create more paperwork for financial companies.
That’s awkward timing when the EU is supposed to be cutting red tape, not adding to it.
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