Europe Finally Has an Excuse to Challenge the Dollar
bloomberg.com
bloomberg.com
Then why make this plan public?
US: Don't trade with Iran because politics
UK, DE, FR, CN, RU: Sorry, We like the deal we made and we would like to trade with Iran.
US: If any company trades with Iran, won't be able to trade with the USA. Make your choise.
UK, DE, FR, CN, RU: Okay then, we will create an infrastructure where the USA won't be able to legally identify and sanction our companies that trade with Iran.
As long as Iran agrees to nuclear restrictions in exchange for the financial benefits of sanctions relief (as agreed in the JCPOA), the other members should be safe from a legal standpoint.
Additionally, the EU Blocking Statute [1] came into force, mitigating any sanctions that the US might impose due to companies trading with Iran.
On the other hand, sanctions on a state are usually met with an equivalent response, and the only question is how powerful the other side is. In the case of the EU, the answer is, not powerless.
Look, the US has a lot of cards to play. But randomly bullying banks who didnt do anything wrong, as per your suggestion, is not a particularly effective one, so they won't do that.
It depends. If that would make some voters happy enough to vote Republicans in November, wouldn't it be effective?
In this case it could come back to harm the US tech sector for example, and it would push EU closer to China and Russia.
It doesn’t serm to me that the public opinion in europe is really heading toward that kind of opinion.
On the other side, what specifically Iran did do to deserve this? Yes they meddle around their neighbors, just like every other country. US is the last who should be blaming others for this, Iran is at least home and not inciting civil wars in Mexico or Cuba. In the same time Saudi Arabia doing some small-scale genocide in Yemen, bombing civilians left and right gets a free pass and very friendly attitude, yet they are the one of the biggest exporters of terrorism and country is as far from freedom and equality as one can be in 21st century.
It's good to see that Europe finally grew a spine.
i really don’t think europe should go to economical war against the US to save this regime’s *ss and sell them a few cars. Note that my reasoning would be absolutely identical if US decided to do the same with saudi arabia...
That's the thing, though. Iran clearly isn't some redeemable den of evil, the populace used to be both well-educated and friendly towards the west. It might take a (democratic) regime change to restore relations to anywhere near "good", but at this rate you could say the same about the US.
> BERLIN (Reuters) - The German government is taking steps to counter a surge in Chinese bids for stakes in German technology companies, including the creation of a billion-euro fund that could rescue such firms in financial trouble, a government source told Reuters.
I would be really disappointed if it goes that way though.
You wouldn't want your friends overriding you on what to eat, what you drink, where you sleep, and who you talk to, would you? You'd question the nature and value of that friendship.
See how dollar plunges and US deficit becomes painful when usd is detangled from oil.
Then we will finally know if one can eat aircraft carriers and holywood movies.
European citizens don’t seem to care that much about the EU’s tight relationship with Saudi Arabia... Why should they feel differently about Iran?
This is exactly the kind of bullying attitude that is pushing US allies away from the US. Using the dollar as a weapon causes everyone to desperately seek alternatives.
Do you think thirty-some countries could negotiate establishing a new international organisation without the US learning about it? I think not, therefore it's better to try to achieve X without secrecy.
I'm cruious, who imposes that fine and how do they enforce payment?
Can the US Government FORCE a French Bank to pay them a fine? Surely a French bank could just say "no thanks".
Plenty of places to send the bailiffs to, or whatever the US equivalent is.
Sure, and lose their banking license in the US and quite probably have their US assets seized.
The executive branch can ( via executive order, treasury sanctions, etc ) and of course congress can.
> and how do they enforce payment?
By threat of financial collapse.
> Can the US Government FORCE a French Bank to pay them a fine?
Yes and no. Are we going to invade france and force the bank to pay the fine? No. Could we threaten to place sanctions on the bank and exclude it from international financial system. Yes.
> Surely a French bank could just say "no thanks".
It can. But then it would immediately collapse. No international bank can survive a US sanction because the US runs the international finance system. There is reason why the swiss banking system submitted to US demands to turn over customer data a few years ago. Economic sanctions on switzerland would turn it into north korea or venezuela.
People mistakenly think that US sanctions means that the US won't do business with a certain country. US sanctions means that everyone doing business with the US can't do business with a certain country.
US sanctions essentially forces the world to choose between the US and country X. The US being the largest economy and the heart of the international financial system wins every time.
It's why there is so much drama with US sanctions on iran. It's not that we won't do business with iran. It's that everyone who wants a business relationship with the US can't do business with iran.
So it seems likely that nothing will change until the US is not the heart of the international financial system...
hmmm... There's a story here about Iran-US, a story about the "western coalition," a story about the dollar's special status (maybe). There's also a story about this "special financial infrastructure/ vehicle."
WTF is that infrastructure? Why are Germany, France & Britain and keen on this? These thing can (often) have ulterior motives or outcomes. Other than trading in other currencies, what does this do?
On the diplomatic "story" this really demonstrates the new multipolar world, once you step out of the military realm and into an economic one. China, the EU & the US are similar size/strength. No stable teams...
On the other hand the UK used to be kind of a watchdog of the EU so that role might have to be filled by either someone else or one can hope that the EU politicians will have enough pressure from their own countries.
Lastly even though the UK is in the process of leaving, basically all the politicians responsible for it have either back paddled or just quit. The UK might yet fall back into the fold, only this time without their special status.
They're making such a mess, I would not be the least surprised to see the DUP withdraw support and a surprise election result. The Labour conference seems to be moving them towards a second referendum.
18 months ago I thought claims "it might not happen" foolish, now I'm starting to think it might not happen. :)
Also there's no way the rest of EU is going to accept for UK to stay in the EU with the same privileges as previously (non use of euro, tax exemptions...). Especially since UK was one of the most critical members, now EU has more incentive to move forward.
Personally I can't see how UK can rejoin the EU without applying from scratch like Serbia and so on.
It's vanishingly unlikely in the time remaining, but I would not be surprised to see huge amounts of flexibility magically appearing, if the UK somehow gained a different administration supporting remain or a second referendum. Even at this stage.
Both Junker and Tusk have repeatedly stated that they'd be happy to cancel the Article 50 negotiations at any time and let the UK stay in the EU under its current terms.
The EU will not be stronger after the UK leaves.
I wonder if this will end with a bang or a whimper.
Ever since this becoming more a self sustainable system by which more goods were billed in USD because more exporters wanted to buy imports billed in USD. The US itself as only country as extraordinary privilege in the world could just print the currency at will, while others had to sell products to earn the currency.
The other side of the deal was, that Europe an Japan were using their economic capacities producing civilian goods, whereas the U.S. could buy these goods with printed money and could use the capacities to build up an otherwise unsustainable large military sector to protect their allies.
As another effect, USD trades are ultimately settled buy the U.S. Fed, so the U.S. can effectively get countries or companies out of the market as long the settlement is done in USD.
Fast forward today: The Euro is as big as USD. With EUR or CNY you can buy all products you want to have. When Russia, Venezuela and Iran decide to sell Oil or Gas there is little technical need to stick for USD. Further Trump cutting the U.S. side of the deal. Why should Europe other further grant the extraordinary privilege to the U.S? And why it would put it's own countries and companies a the risk of Feds goodwill to perform the settlement? Given Trumps apparent will to use the USD as a weapon, it is a question of national security for Europe, UK, Japan, Iran and the BRICS to change to a different regime.
My personal expectation is that settlement in EUR will be only transitional before SDRs issued by the BIS will become the final currency of choice. These will resemble the "Bancor" proposed by Keyenes before the Bretton Woods system was implemented
Trump shouldn't have pulled out of the Iran deal, but preserving that power for the future is more important.
Here's a good article about OFAC, the Treasury Department group that handles sanctions:
https://www.reuters.com/article/us-usa-sanctions-insight-idU...
"It's weird to think that the actions of the few who wield the most - but not the majority - of the power in the US are talked about as if they are the US."
Sometimes, we narrow this down; we say, the X administration. But is that accurate? Does it convey the emotional reality?
Maybe we should say; [Person], acting in their duty as [Role] on behalf of the US, has [action].
But, does this have the inevitable effect of distancing those people from the country that has given them power?
More than half the voting-power of the US voted for Trump, and some portion of that power is then invested in these decisions; at the same time, less than half the voting-power of the US voted for trump, and some portion of that power is then disinvested in those decisions.
It's almost like we need different words to describe the national entity when that entity is democratic than the words we inherited from monarchies.
Maybe we take a page from swarms - perhaps instead of "The US imposed sanctions", we say, "From the US emerged sanctions", or, "Those empowered by the US imposed sanctions". But, none of these use as few words as: "the US did X". Brevity wins.
When someone wants to know how americans currently think and look like, then they just take a look at their current president. /s
1.) Do nothing. Poland, and the parts of Germany that used to be East Germany, might not like the long term consequences of this plan.
2.) Start a nuclear war, killing hundreds of millions of people. A few disadvantages to this plan as well.
3.) Economic sanctions. You can certainly say this will kill people by way of depressing GDP growth. Will it kill fewer people than a full nuclear exchange between the US and Russia?
|US invasions| >> |Russia invasions|
|US invasions| / GDP ~= |Russia invasions| / GDP4) The democratic way: ask people in this "another" country and if the opinions split then restructure it: either convert it peacefully into two countries (like Czechoslovakia) or confederation/federation.
Both of these are the best exports of American influence and require the US to be at the center of all things financial.
That was all nice and fine. Unfortunately it's no more sustainable with a president, who can kill a country's economy with an early morning twitter tantrum.
Europe has a lot more to loose on an unstable Iran than the US and can't risk deals being undone because the US has a new regime every 4 years.
And this isn't even me being a jingoistic American, I was born in Canada.
2 wrestlers fight for some good amount of time. When they're tired enough, a 3rd wrestler gets in and beats both.
That was World War II for the most part. After World War II, most of the world was destroyed except for the US.
After the war, the US never left. Overseas bases still exist in Germany, Japan and many other places.
They had everyone adopt a financial system (Bretton Woods) which was largely abused making the US absurdly rich for a few decades... highways, higher education for a bunch of people, space exploration, absurd wars thousands of miles away, a gigantic navy and air force, you name it.
After other countries realized it was a scam (aka "exorbitant privilege"), this golden era ended and the US started to slowly meet reality, rapidly accumulating debt.
The inevitable fate of the US is to collapse in the same way the Soviet Union did in 1989. This will likely happen before 2050 and you read it first in the comments section of HN.
Once the US collapses, the Inter-American Treaty of Reciprocal Assistance will be worthless and South America will be taken apart in a giant pinata party starting by the Argentinean Patagonia.
While the final phase took several years, USSR collapsed in 1991. 1989 was de-facto collapse of Warsaw Pact (Berlin Wall).
I lived in USSR/Russia back then, and for the last almost 2 decades i've been living in the US. While a bunch of things went downhill during that time here, the US and USSR doesn't even come close. Specifically, in major part the USSR collapse was due to lowest (at least among developed countries) productivity of its economy, from agriculture to high-tech. The country basically ran out of food. Compare that to the US where economic productivity, from agriculture to high-tech is among highest in the world. Granted, the current administration seems to be hell-bent on doing as much damage to the US economy as possible, yet i think the US economy will be in pretty good shape even after those 6 more years that Trump is going to spend in the office (the damage he is going to do in the next 2 years wouldn't be enough for his electorate to trim their enthusiasm).
The US is largely living beyond its means at the moment and this situation is not sustainable in the long term.
The ubiquity of US dollars in international trade allows US to torpedo the economy of any country it so desires. It is like the US has a kill switch to shut down any economy it wishes to. But the only reason the rest of the world plays along and allows the kill switch to exist is that they trust the US to use it responsibly and only in extreme circumstances. Now with the erosion of that trust, it is to be expected for the world to move towards eliminating that threat.
But it's true that the advent of Trump makes the bullying more difficult to accept because it's now absurd and incoherent; if some other powers unite and find a way to resist the bullying, then at least some good will have come out of trumpism.
In the grand scheme of things I'm also happy the rest of the world seems to be becoming less dependent on the US. It removes single point of failure scenarios. Economies and nations keeping each other more at arm's reach would help ensure the world acts in a more democratic fashion while simultaneously also providing insulation against the failing of any given nation's poor decisions - be those social, political, economic, or military.
This is completely ahistorical. You're describing the "balance of power" system that governed international relations and we know what happened: hundreds of years of European wars culminating in two world wars.
All our current system of relations has done is turn US into the world's final word on everything. This creates more of an autocratic than a democratic system of world relations. That Saudi Arabia sits on UN human rights council, chairing their advisory committee (which chooses appointed 'independent experts') speaks to how functioning our international institutions are. They are a little more than a proxy for US influence. I do not think any single government should have such a unilateral influence on the happenings of the world.
And that's exactly why this is necessary. The above is only cool if you're part of the ~5% of the world that is American.
I'd contend that holding a basket of currencies is even more stable and reliable. Basic diversification logic would suggest that a basket of USD / EUR / GBP / AUD / CAD / NOK is safer than just USD.
The data is pretty clear on this, it does not lead to regimn change or whatever else the country wants.
Now people will claim that the Iran deal is a counterexample, but it is not. I was the US who realied that their sanction had no effect on the nuclear program was going fast. The US then compromised even more.
The US is very good at making sanctions, but bad at removing them.
The way the do it in the Iran case is directly and clearly against all the international laws the US claims to stand for.
Its a sad state of affairs when Iran observes international law and the US spits on it.
With Trump, it is clear that he only wants to exercise such power without considering the consequences of it.
With the trust towards US fading, in and out of West, a complimentary mechanism will be created. US will control/influence where its hard power can still reach, but not beyond.
True, but they're also starting to think seriously about building storm shelters for the next time a storm blows through.
Go do the world police thing somewhere else while you get over this weird phase your going through, leave this one to us.
The EU chosing Iran over the US?!
That is not what is going to happen over the reopened Iran deal. What is going to happen is that the EU will fall in line and Iran will be forced to withdraw its activities in Syria, Iraq, Yemen ... due to the severity of the economic hardship caused by the sanctions.
So either the EU decides to submit to the US or decides to grow a spine. It appears it's the latter. Too bad for the US.
I like that, but the English word is "kowtow", borrowed from Chinese.
This seems like a very good way for the Europeans to learn how much of the international financial system relies on American goodwill to work as planned.
If France was the dominant world power we would be transacting in euros or francs and they would get to decide who was in the club. Until then ...
Politically though, it's very interesting, right? But I hope that we are not discussing that sort of politics here on HN because it rarely produces a good discussion.
As if world power had something to do with technicalities, IT-systems, which currency to transact in.
Sorry guys. This is not how the world works.
The USD is dominant currency not because of the lack of alternatives.
The USD is the dominant currency because USA is the dominant military power by an order of magnitude.
As long as that is the case it means the EU can get only token independence. Ultimately if the US says no - you cannot deal with Iran. Then that is the way it is.
Does it mean that the EU is going to be nuclear bombed by the US? Of course not. It is much cheaper to go: One of your banks. It is not allowed to trade in USD anymore.
>The USD is the dominant currency because USA is the dominant military power by an order of magnitude.
Wrong. The USD was dominant currency because USA was the only major country untouched by WW2. Every other major country had it's infrastructure bombed and shattered. It is the dominant currency today because everyone is lazy to change the status quo as long it is working.
If USA upsets the status quo it will be replaced. Just ask your cousins across the Atlantic how that works.
P.S. your armed superiority is a joke. You were unable to defeat a bunch of untrained rice farmers. Your only armed victories in the last 50 years were against civilian militias. Any serious war with the standing armies of Russia, China or India will get you creamed. The only reason you are tolerated is because no one wants to be the one to start a war.
Spain? Portugal? Brasil? Australia?
> your armed superiority is a joke.
Ah, comrade, I understood now. Check the score of recent clash with your "Wagner" mercs. How many US lost? Yes, zero.
Large internationals will stop dealing with Iran, some small businesses with no US market will continue. And the set of companies is not static. We all have to earn a living. If you don't want to import Iranian pistachios anymore, someone else will.
Which is why the sanctioneers are so obsessed with shutting down SWIFT, and angry at the proposed vehicle. Because unless it's prohibitively costly to exchange money with Iran, someone will do it.
Iran is going to sit still for a while. They will navigate the waters as best they can, which may include showing some restraint at times, but things have to get much much worse economically before you see the total withdrawal you are predicting.
Assuming their internal situation stabilizes, which is not an unreasonable assumption at this point, Iran will at some point in the future declare that they do not consider themselves bound to the deal anymore, while emphasizing again that they do not seek a nuke and never have, and without initially escalating. They will then rebuild their nuclear infrastructure in steps and initially in secret whenever, trying to limit then fallout, as they have done before.
The EU constantly talks about challenging US power (Macron and Merkel in particular), but almost never do. I'm sure this will be more of the same.
True independence of the us requires a military that the eu does not have (and even less now that the brits are leaving).
The unfortunate (for them) truth about the EU is that outside of its economy, the EU is irrelevant on the international stage. People want access to their market, but Europe cannot project any force outside of their own borders. Outside of maybe Iran, there isn't a single country in the world that curbs their actions due to fears about what the EU will do. Even countries inside the EU act without fear of what the EU will do, just look at Poland.
I'd even venture to say most people in the world don't even know it exists. People know about Germany, France, and those countries individually, but people only know about the EU because of the news Brexit caused.
The United States has allies AND leadership in every region of the country - Europe doesn't. If all this commotion has to do with the Iran deal, the other major players in the region (Israel, Saudis, and UAE) all have close ties to the US and will be following American leadership and ignoring whatever Europe says. So I don't even see how Europe successfully protects Iran in this case.
So sure, Europe can talk all it wants about how they want to get rid of US leadership. But American leadership is felt all over the world, and major countries in almost every region will follow the US and not Europe.
Sometimes having a big ass army, economic and cultural hegemony, and a history of being in other people's affairs gives you some clout.