The European Union is wondering what strategy to adopt in the upcoming negotiations after the U.S. tariff threats. The European Commission, in its recent document "Euro exchange rate policy in the face of currency coercion threats - Economic Governance and EMU Scrutiny Unit (EGOV)" (download it here), outlines the EU's institutional framework for the definition and implementation of an active euro exchange rate policy in the context of U.S. policy changes. All the choices and considerations also affect the exports of the fruit and vegetable sector.
"It is plausible that speculations about the radical change in U.S. exchange rate policy advanced by Trump are exaggerated and that the status quo will be maintained," begins economist Gianluca Bagnara. "However, a natural depreciation of the dollar to compensate for U.S. debt could make the devaluation discussion unnecessary."
"If the U.S. were to adopt a policy of dollar devaluation, as is plausible, the EU could face economic and political tensions. The ECB could be forced to intervene to prevent an excessive appreciation of the euro, while the U.S. could press member states for concessions, such as buying U.S. debt securities in exchange for the lowering of trade tariffs."
A radical change in global currency policy would pose a challenge to the EU's current institutional structure, which has so far functioned by separating political and monetary matters.
"The EU has the opportunity to improve the position of the euro as an international currency. To do so, it should increase the issuance of common debt, overcome the fragmentation of the European financial system, and accelerate the implementation of the digital euro project. This last point could then find support in the launch of a European market for carbon and biodiversity credits (so-called nature credits), i.e., underlying collateral for the digital currency (stable-crypto)."
"The question arises: is it better to negotiate on duties or to accept them in order to avoid the alternative scenarios?" concludes Bagnara.
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