Euro Challenges US Dollar Hegemony

The monetary integration of Europe could alter 'the political character of Europe in ways that could lead to confrontation with the United States' and could lead to a world that was 'very different and not necessarily a safer place.'

— Martin Feldstein, former head of the President's Council of Economic Advisors, 199785

Before 1985 the United States had been a net creditor, gaining more from its foreign investments than it paid to them in interest on Treasury bonds or other US assets. However, since the end of the Cold War, the US has become the world's largest debtor nation.

Americans do not yet understand the significance of the euro, but when they do it could set up a monumental conflict, it will change the whole world situation so that the United States can no longer call all the shots.

— Helmut Schmidt, former German Chancellor, 199786

The introduction of the euro heralded not only a new stage in European economic integration, but also an important potential challenge to the dominance of the US dollar as the international reserve currency. Indeed, it presaged the only real macroeconomic challenge to US global primacy. When the euro was launched in 1999, leading EU government figures, bankers from Deutsche Bank, and French President Chirac went to major holders of dollar reserves — China, Japan, Russia — and tried to convince them to shift some of their reserves from dollars into euros.87 However, that proposal was perhaps premature at the time and clashed with the need to devalue the highly appreciated euro so German exports could stabilize growth within the newly integrated eurozone. A falling euro was the case until 2002.

With the debacle of the US dot-com bubble bursting, the Enron and Worldcom finance scandals, and the recession in the US, the dollar began to lose its attraction for foreign investors. The euro gained steadily until the end of 2002. Then, as France and Germany prepared their diplomatic strategy to block war in the UN Security Council, the central banks of Russia and China quietly began to unload dollars and buy euros. The result was severe dollar devaluation in the few months just before the war. Perhaps central banks were hedging their investment risks due to war. Iraq is just one pawn in this high-stakes strategic game of chess.

However, in Washington and New York, the upper echelons of the US political and banking establishment knew what was at stake. The Iraq War was not about Saddam Hussein's old WMD program or the "war on terrorism." It was the threat that other members of OPEC would follow Iraq and shift to a petroeuro system, thereby eroding the dollar's dominant role in the global economy. Engdahl forewarned that if France, Germany, Russia, or OPEC oil exporting countries were to shift "even a small portion of their dollar reserves into euro to buy bonds of Germany or France or the like, the United States would face a strategic crisis beyond any of the postwar period."88

As one economist termed it, an end to the dollar's World Reserve role would be a catastrophe for the United States. To stem a sudden divestiture of dollar assets, US interest rates from the Federal Reserve would have to be pushed higher than in 1979 when Paul Volcker raised rates above 17 percent to stop the collapse of the dollar's valuation.89

The global community is currently witnessing a clash between Wall Street and competing Franco-German financial interests, with London and the pound sterling caught in the middle. In 2002 Canadian economist Michel Chossudovsky eloquently described the significance of these economic and strategic developments in his book War and Globalization. Well before the Iraq War, he noted the unfolding global monetary movements regarding the dollar and the euro.

The European common currency system has a direct bearing on strategic and political divisions. London's decision not to adopt the common currency is consistent with the integration of British financial and banking interests with those of Wall Street, not to mention the Anglo-American alliance in the oil industry (BP, ExxonMobil, Texaco Chevron, Shell) and weapons production (by the "Big Five" US weapons producers plus British Aerospace Systems). This shaky relationship between the British pound and the US dollar is an integral part of the Anglo-American military axis.

What is at stake is the rivalry between two competing global currencies: the euro and the US dollar, with Britain's pound being torn between the European and the US-dominated currency systems. In other words, two rival financial and monetary systems are competing worldwide for the control over money creation and credit What we are dealing with is an 'imperial' scramble for control over national economies and currency systems.90

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