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Since the 19th century at the latest, US policy has fluctuated in large waves between the aspiration to shape international relations as a leading global power - as in the decades following the Second World War - and a pronounced isolationism. With Trump's policy, the pendulum is clearly swinging in the latter direction. In a global economy with a high degree of division of labor, however, this leads to the USA weakening itself: the price-driving effects of customs policy are damaging the American economy, while the rigid migration policy and attacks on universities are undermining key pillars of competitiveness. The questioning of the independence of the Federal Reserve raises doubts about the reliability and predictability of policy and the renunciation of alliances diminishes the political weight of the USA in the world.
The consequences are already visible on the bond markets: global investors, who have willingly financed the USA's high current account deficit for decades, are increasingly questioning the safety of US government bonds. So far, this doubt has been expressed in moderately rising interest rates and thus still appears to be manageable. However, the US government's intention to allow the trillion-euro mountain of debt to continue to grow is exacerbating the situation, as the sustainability of US government finances is no longer guaranteed.
The “TINA” argument (“there is no alternative”) has so far stood in the way of a widespread flight from US government bonds. This is precisely where an opportunity opens up for Europe, or more precisely for the European Monetary Union. Today, the euro is already the second most important reserve currency in the world, albeit with a very large gap to the dollar, which remains the leader. The eurozone offers many things that are increasingly being called into question in the USA: an independent central bank, a reliable legal framework for companies, an open economy, democratic decision-making structures and, all in all, political stability. In the coming years, Europe will need significantly more capital for infrastructure modernization, higher research and development spending, improved international competitiveness, digitalization and, last but not least, climate protection. The chances are basically good that more capital will now flow into Europe, which would strengthen the role of the euro in the global structure.
However, Europe also lacks some things that the USA takes for granted. Above all, this includes a single capital market that is attractive and large enough for global capital flows. Completing the European Capital Markets Union should therefore be of paramount strategic importance for European governments and the EU Commission. In particular, significantly improved
financing opportunities for start-ups are also an important element for improving European competitiveness in the real economy. This was already clearly highlighted in last year's Draghi Report. It therefore seems highly desirable that nationally motivated, rather small-scale interests, such as those put forward by Germany in particular to date, are not overemphasized in the interests of the European cause. The monetary union has a once-in-a-century opportunity here that should not be squandered. Replacing the dollar as the global reserve currency is not a realistic goal for the euro for the time being. However, if global investor confidence in the dollar continues to erode, which seems entirely conceivable in view of Trump's agenda, then Europe could and should be able to offer global investors an alternative.
