Most of Onno Ruding’s analysis of the external role of the euro is beyond dispute. The distinction he makes between the single currency’s internal and external roles is useful, even though the two aspects are clearly interlinked and are in effect two sides of the same coin. And, yes, the euro was perceived by European policymakers as one of the two pillars – together with a better functioning single market – that are prerequisites for faster and more sustainable economic growth.

 

The debate on the eve of EMU’s 1999 deadline was mostly focused on this internal dimension, while opinions on the external role of the common currency were rather marginal. It was generally taken for granted that the euro would play a greater role, both in international financial markets and as a reserve currency, than the combined weight of the participating national currencies, and that this would enhance the “seignorage” enjoyed by the new European Central Bank (ECB).

 

A substantial external role for the euro can also provide other positive effects for the European economy. In particular, European monetary policy could have additional degrees of freedom in its conduct, and focus more on what seems useful for the European economy and driven less by decisions taken on the other side of the Atlantic.

 

For this to happen, however, the euro area must first prove successful in terms of growth. The euro and the ECB are responsible for only a part of the story; they provide the “pre-requisite” for a growth strategy, thanks to stability and a well-functioning pan-European financial market, needed to foster investment and encourage companies to implement long-term business strategies. The remaining task is for national governments and EU institutions, which must implement structural reforms and other measures like the ones included in the Lisbon “Growth and Jobs” strategy, so far neglected by most member states.

 

Clearly, if the EU is more convincing in its efforts to improve its overall functioning, and consequently its growth prospects, the international role of the euro would also be enhanced, and monetary policy would benefit from that.

 

Onno Ruding rightly touches on the issue of volatility between the euro and the dollar, a phenomenon that is bound to remain in place despite some of the fancy plans that have been proposed for international monetary reforms. The reason is simple: both players will continue to try to implement autonomous economic strategies, so exchange rate volatility will be the rule and stability the exception.

 

Nowadays, the euro is a relatively “strong” currency, and we appreciate the advantages of lower imported inflation. But it is a situation that might quickly reverse, so the issue of trade invoicing (especially for raw materials and energy) cannot be ignored. Once more, this is clearly linked to the international standing and reputation of the euro, and at the end of the day of the EU as a political player.