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Economy

Euro's potential rise amid shifting global economic landscape

Wednesday 28 May 2025 - 10:50

By: Dakir Madiha

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European Central Bank President Christine Lagarde recently underscored a significant transformation in the global economic order, one that has relied heavily on the leadership of the United States and the dominance of the US dollar. Speaking at the Hertie School in Berlin, she articulated concerns over the fracturing of this system, which, while presenting risks for Europe, also opens avenues for the euro to solidify its position as the world’s primary currency.

Lagarde emphasized the benefits that Europe has reaped from a global economy characterized by openness and multilateralism, a framework historically supported by US leadership. The US dollar has served as a cornerstone of international trade and finance for decades, fostering growth and stability. However, the current geopolitical climate has prompted Lagarde to declare that this order is now at risk.

She attributed this shift to rising tensions in global trade, particularly actions taken by US President Donald Trump, who has threatened to impose heavy tariffs on various nations, including those within the European Union. Such protectionist measures, according to Lagarde, signal a move away from multilateral cooperation toward a landscape defined by bilateral negotiations and zero-sum competition.

Lagarde warned of the potential consequences of this trend, noting that a decline in international trade or the emergence of fragmented economic blocs could prove detrimental to Europe’s growth. She articulated a clear message: "Any change in the international order that leads to lower world trade or fragmentation into economic blocs will be detrimental to our economy."

Despite these challenges, Lagarde expressed cautious optimism about the euro's prospects. The diminishing influence of the US dollar might create an opportunity for the euro to gain traction as a global currency. A stronger euro could benefit EU nations by reducing borrowing costs, mitigating the effects of currency fluctuations, and enhancing Europe’s economic sovereignty.

However, Lagarde stressed that achieving this goal will require concerted effort. "This is not a privilege that will simply be given to us. We have to earn it," she asserted. She urged the European Union to remain committed to open trade, strengthen its economic foundations, uphold the rule of law, and invest in security measures.

Her remarks come at a time of heightened tensions between the US and the EU. Recently, Trump expressed dissatisfaction with ongoing trade negotiations, suggesting that the EU was established primarily to exploit the United States economically. His threat to increase tariffs on EU goods from 10% to a staggering 50% could profoundly affect transatlantic relations and the broader economic landscape.

As the world watches these developments, the path forward for the euro remains intertwined with the evolving dynamics of global trade and diplomacy. The stakes are high, and the implications of these shifts will resonate far beyond Europe’s borders.