In a move by the European Commission to challenge the U.S. dollar’s dominance in global markets, it is proposing various plans to strengthen the euro by suggesting restrictions on trade contracts and other items. How likely is this to impact the dollar value and how long before we would see an effect?
Until after Dec. 11, 2018, we have various levels of uncertainty and would not be appropriate to comment on below, as we have no idea what macroshocks and shifts will take place in EU and U.K.'s separation. Certain measures of protection in favor of the euro are being considered. However, they are not enforced yet. No confirmation of restrictions has been enforced but only in discussion in EU parliament. We have to wait and see where it goes from next week onwards.
Since I am a lawyer and not an economist, I can only express an opinion with little expertise, just some experience. Treaties are only a small contributor to currency issues, which are usually more immediately and directly affected by interest rates as between Europe and the U.S. Since the U.S. has been in an increasing interest rate environment and the Europeans are more stable, it would not seem that trade items could have a greater impact to mitigate the effects of interest rates. In addition, many of the trade issues between the U.S. and Europe seem to have calmed down in the last few months, with bilateral treaties and ongoing discussions between the parties.
My response is personal, but I have been doing work to set up a distressed debt fund in Europe, and there are so many issues that I have no concern about the dollar being supplanted. I worry about the stability of the EU (which may be helped if Brexit doesn't occur). Will Angela Merkel's successor be as strong as she has been in holding it together? Will Italy decide to pull out because it can't meet the budgetary requirements? I can go on and on from there.
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