The Next Generation EU (NGEU) as a Catalyst for the Promotion of the International Role of the Euro

Abstract

Recent developments in the global arena such as the COVID-19 pandemic and stresses in energy markets, made it clear that it is critical for the EU to ensure its strategic autonomy in the macroeconomic field. Strengthening the international role of the euro is one of the key elements in this regard. Through timely analysis of the changes stemming from the establishment of the Next Generation EU (NGEU), we seek to understand to what extent the NGEU can serve as a catalyst for the promotion of the international role of the euro.

While it is implausible that the euro will overcome the primacy of the US dollar, we center our analysis around the transformation of the EU’s presence in capital markets. Following massive issuances of green bonds under the NGEU, the EU became the largest issuer of green bonds and has the potential to progress from a small supranational issuer to a sovereign size issuer. This means that the pool of highly rated euro-denominated safe assets will expand significantly. That is where we focus our analysis and where we see the opportunity of the NGEU for unleashing the potential of the euro and boosting its international role.

Keywords: COVID-19, European Commission, next generation EU, euro, green bonds, safe assets