Lagarde bids for euro primacy - but don't bet against the dollar just yet, says ALEX BRUMMER

Christine Lagarde has never been short of ambition, as her translation from French finance minister to head of the IMF and now president of the European Central Bank (ECB) demonstrates.
The ECB chief's latest target is to end the also-ran status of the euro as a reserve currency. Her aim is to displace the dominance of the dollar, which represents 58 per cent of foreign currency reserves, with the euro which accounts for around 20 per cent.
Lagarde recognises that the EU may not be trusted until it completes the single market, reduces regulatory burdens and builds a robust union of capital markets.
In Europe's favour, largely thanks to Germany, is the EU-wide debt-to-GDP ratio of 89 per cent against 100 per cent in the UK and 124 per cent and rising in the United States.
Lagarde's demarche comes at a moment of high tension for the guardians of the dollar at the US central bank, the Federal Reserve. It began a two-day interest rate setting session yesterday under fire.
Donald Trump's tariff mayhem and a so far ill-fated effort at securing world peace have been dominating headlines.
Plan: European Central Bank chief Christine Lagarde's latest target is to end the also run status of the euro as a reserve currency
The US President's unrelenting attacks on the Fed's chairman Jay Powell have been under the radar but may inadvertently be holding up the very interest rate cuts Trump craves.
Ideally, American interest setters might want to lower the official federal funds rate from its current range of 4.25 per cent to 4.5 per cent.
But to do so might give the impression to markets, businesses and consumers that the central bank is vulnerable to political pressure and not serious about hitting a 2 per cent inflation target.
We shouldn't underestimate the pressure on Powell.
Using disobliging language, the Fed chairman variously has been described by Trump as a 'loser' and a 'numbskull' for not bringing rates down more quickly to facilitate growth.
Indeed, the president has gone as far as to name a preferred successor, Fed governor Kevin Warsh. He is a critic of central bank mission creep beyond its monetary role of fighting inflation.
It is not just Trump who is gunning for the Fed. Texas Senator Ted Cruz, a potential Republican presidential candidate in 2028, advocates a halt to the Fed's practice of paying interest rate on its reserves.
This policy gobbled up $280billion in 2023 and has cost as much as a trillion dollars over a decade.
The approach is sometimes given a run-out in Britain with Reform among those suggesting that cancelling the Bank of England payouts could save £35billion of interest rate bills a year.
The Fed has good reason to be cautious irrespective of political pressure. Core inflation and the US central bank's preferred data, the personal consumption expenditure index, are both running above the 2.5 per cent target.
The ongoing tariff war threatens to raise domestic prices as the levy is passed onto consumers.
The current Israel-Iran war raises the prospect of higher energy prices ahead of the summer driving season.
Andrew Bailey, the governor of the Bank of England, is fortunate that former junior colleague Rachel Reeves is not throwing Trump-style brickbats at the central bank.
It is irksome that Reeves defends her stewardship of the economy by referring to the four quarter-of-a-percentage point reductions in the bank rate since Labour took office 11 months ago.
That is a far milder aspersion on the Bank's independence than anything heard in America. Reeves' botched budgetary decisions fly in the face of an assertion that fiscal policy created the stability that allowed borrowing costs to fall.
Freed from such pressures, Lagarde has been able to guide EU rates down and at 2 per cent they are now half those in the US and UK.
Europe's moribund economies need a boost as they retool for a greener energy future. But it is a big jump for the euro from distant second to be being a favoured reserve currency.
After all, the dollar is the currency of commodities and global trade. It is also able to finance a bigger deficit than the EU because of the resilience of the American economy, which can grow its way out of difficulty. Too soon to sound the last post for the greenback.

Try Our AI Features

Explore what Daily8 AI can do for you:

Learn with AIFact CheckingText to SpeechAI Summary

Related Articles

Reuters

29 minutes ago

• Reuters

Hundreds of US citizens left Iran in last week, State Dept cable says

WASHINGTON, June 20 (Reuters) - Hundreds of American citizens have departed Iran using land routes over the past week since an aerial war between the Islamic Republic and Israel broke out, according to an internal State Department cable seen by Reuters on Friday. While many left without problem, "numerous" citizens had faced "delays and harassment" while trying to exit, the cable said. It said, without giving further details, that one unidentified family had reported that two U.S. citizens attempting to leave Iran had been detained. The internal cable dated June 20 underscores the challenge Washington is facing in trying to protect and assist its citizens in a country with which it has no diplomatic relations and in a war in which the United States may soon get involved. The State Department did not immediately respond to a request for comment. The cable was first reported by The Washington Post. President Donald Trump and the White House said on Thursday he will decide in the next two weeks whether the U.S. will get involved in the Israel-Iran war. Trump has kept the world guessing on his plans, veering from proposing a swift diplomatic solution to suggesting Washington might join the fighting on Israel's side. The air war began on June 13 when Israel attacked Iran and has alarmed a region that has been on edge since the start of Israel's war in Gaza in October 2023. Israel is the only country in the Middle East widely believed to have nuclear weapons, and said it struck Iran to prevent Tehran from developing its own nuclear weapons. Iran, which says its nuclear program is peaceful, has retaliated with its own strikes on Israel. Iran is a party to the Nuclear Non-Proliferation Treaty, while Israel is not. The U.S. State Department in a travel alert earlier on Friday urged its citizens wishing to depart Iran to use land routes via Azerbaijan, Armenia or Turkey. Iranian airspace is closed. The U.S. Embassy in the Turkmenistan capital of Ashgabat has requested entry for over 100 American citizens, but the Turkmenistan government has yet to give its approval, the cable said. The Islamic Republic treats Iranian-U.S. dual citizens solely as nationals of Iran, the State Department emphasized. "U.S. nationals are at significant risk of questioning, arrest and detention in Iran," the alert said. Washington is looking at ways to potentially evacuate its citizens from Israel, but it has almost no way of assisting Americans inside Iran. The two countries have had no diplomatic ties since the Iranian Revolution in 1979. U.S. Ambassador to Israel Mike Huckabee on Thursday said the administration was looking at different ways to get U.S. citizens out. "We're working to get military, commercial, charter flights and cruise ships for evac," he said in an X post, urging U.S. citizens and green card holders to complete an online form. As of Friday, more than 6,400 U.S. citizens filled out that form for Israel, a separate internal department email seen by Reuters said. The form allows the agency to predict an approximate figure for potential evacuations. "Approximately 300-500 U.S. citizens per day would potentially require departure assistance," said the internal email, also dated June 20 and marked "sensitive". The State Department does not have official figures but thousands of U.S. citizens are thought to be residing in Iran and hundreds of thousands in Israel. Israel's strikes over the last week have killed 639 people in Iran, according to the Human Rights Activists News Agency. Israel says Iranian attacks have killed 24 civilians in Israel. "The U.S. Department of State received no reports of U.S. citizen casualties in Israel or Iran," the second email said.

Daily Mirror

30 minutes ago

• Daily Mirror

Brits could see summer holiday spending boost - see full list of destinations

The strength of the pound against most other currencies has boosted Brits' spending power when they head abroad this summer, research had found, in some cases by a lot Millions of Brits planning foreign holidays this summer will be quids in thanks to the pound's strength, a recent report has found. Sterling's gain against a host of currencies has boosted families' spending power - in some cases by a lot. For instance, the pound's 30% rise against the lira in the past year means holidaymakers jetting to Turkey will have a bumper £116 more to spend for every £500. That is equivalent to a couple of three course meals for two, with wine, in the Turkish resort of Marmaris, plus four beers. Those considering a long-haul break to Mexico will have almost £57 per £500 extra thanks to a near 13% increase against the peso, according to the Post Office Travel Money's Holiday Spending Report. ‌ ‌ It reveals that the UK pound is stronger than a year ago against 25 of the 30 currencies and has gained ground against 80% of them since March. Others in the top 10 list of spending power gainers include Egypt, Australia, and New Zealand. Brits thinking of a trip to the States will also get more bang for their buck thanks to sterling's 6.6% rise against the US dollar, meaning they would have almost £31 per £500 more to spend than this time last year. Despite that, many people are seemingly having second thoughts about going on holiday to the USA. The main concern is that US President Donald Trump 's trade tariffs will mean higher prices - cited by 78% of those polled - rather than his politics in general. Those heading to Europe will also be better off, though not by so much. Sterling is just 0.9% up against the euro year-on-year, meaning Brits have £4.50 per £500 more spending power across the pond than last summer. The Post Office report also found a sharp rise in the number of people planning trips abroad. Two-thirds of those surveyed said they intend to take a foreign holiday this year , with more than half having already booked their trip. That is despite growing concerns voiced by nine-in-ten of them about whether they have enough money to afford the trip. Over three-quarters said exchange rates were a big concern for them. When it came to people's views on the best value destinations, Brit-favourite Spain came top, followed by Turkey, Thailand, Portugal, Greece and Italy. When it came to their trip abroad, 82% of holidaymakers said they had set a budget averaging £377, but most admitted overspending. ‌ Laura Plunkett, head of travel money at the Post Office, which accounts for one-in-four UK foreign exchange transactions, said: 'This year's holiday spending research again demonstrates that holidaymakers don't always set a realistic budget and overspend by large amounts as a result. It's great to hear that holidaymakers are already planning to budget more for their holidays this year, to avoid coming unstuck when they arrive at their destination.' The report also found that many holidaymakers are paying over the odds for transactions abroad. While it advisable to carry some cash overseas, one-in-five in the survey said relied solely on plastic to pay for purchases, and just over a quarter changed less than £100 into foreign currency. As a consequence, holidaymakers can into difficulties. From the poll, 7% said they had tried to pay a restaurant, shop or bar bill with a credit card, only to find that it was not accepted. More than one-in-ten also fell foul of a practice known as Dynamic Currency Conversion by agreeing to pay on their card in sterling rather than local currency, incurring unnecessary transaction charges as a result. Ms Plunkett said: 'Paying on a debit or credit card may seem like a convenient way to pay for things while abroad, but our research suggests that this can be a costly practice. Far too many holidaymakers told us that they paid significantly more than they anticipated because of the transaction charges made for using credit and debit cards at an overseas ATM."

BBC News

30 minutes ago

• BBC News

32 nations but only one man matters - Nato's summit is all about Trump

Nato summits tend to be "pre-cooked", not least to present a united General Mark Rutte has already settled on the menu for their meeting at The Hague: one that will avoid a row with Nato's most powerful member, the US.A commitment to increase defence spending by European allies is the dish that President Donald Trump wants served – and that's exactly what he'll be getting. Though there will inevitably be the added ingredients of compromise and will the summit be able to paper over the cracks between Trump and many of his European allies on trade, Russia and the escalating conflict in the Middle US president, whose mantra is America First, is not a huge fan of multinational has been highly critical of Nato too – even questioning its very foundation of collective defence. In Trump's first term, at his first Nato summit, he berated European allies for not spending enough and owing the US "massive amounts of money".On that message he has at least been consistent. Mark Rutte, who has a good relationship with the US president, has worked hard to give him a summit takes place at the World Forum in The Hague over two days, on Tuesday and Wednesday next the main discussions will last just three hours and the summit statement is being reduced to five paragraphs, reportedly because of the US president's is one of 32 leaders from the Western defensive alliance who are coming, along with the heads of more than a dozen partner police have mounted their biggest ever security operation for the most expensive Nato summit so far, at a cost of €183.4m (£155m; $210m).Some have suggested the brevity of the summit is in part to cater to the US president's attention span and dislike of long meetings. But a shorter summit with fewer subjects discussed will, more importantly, help hide Arnold, of the defence think tank Rusi, says Trump likes to be the star of the show and predicts he'll be able to claim that he's forced European nations to truth he's not the first US president to criticise allies' defence spending. But he's had more success than most. Kurt Volker, a former US ambassador to Nato, admits that some European governments do not like the way Trump's gone about it – demanding that allies spend 5% of their GDP on defence. Europe still only accounts for 30% of Nato's total military spending. Volker says many Europeans now admit they that "we needed to do this, even if it's unfortunate that it took such a kick in the pants".Some European nations are already boosting their defence spending to 5% of their GDP. Most are the countries living in close proximity to Russia – such as Poland, Estonia and not just Trump who's been piling on the pressure. Russian President Vladimir Putin's invasion of Ukraine is forcing a in reality many Nato members will struggle to meet the new target. A few haven't met the goal of 2%, set more than a decade compromise formula is for allies to increase their core defence spending to 3.5% of GDP, with an additional 1.5% towards defence-related the definition of defence-related expenditure appears to be so vague that it might be rendered meaningless. Rutte says it could include the cost of industry of infrastructure – building bridges, roads and railways. Ed Arnold, of Rusi, says it'll inevitably lead to more "creative accounting".Even if, as expected, the new spending target is approved, some nations may have little intent of reaching it – by 2032 or 2035. The timescale's still unclear. Spain's prime minister has already called it unreasonable and counterproductive. Sir Keir Starmer hasn't even been able to say when the UK will spend 3% of its GDP of defence. The UK prime minister only said that it was an ambition some time in the next parliament. However, given the UK government's stated policy of putting Nato at the heart of the UK's defence policy, Sir Keir will have to back the new real danger is to interpret the demand for an increase in defence spending as arbitrary, a symbolic gesture – or just bowing to US pressure. It's also driven by Nato's own defence plans on how it would respond to an attack by Russia. Rutte himself has said that Russia could attack a Nato country within five years. Those defence plans remain secret. But Rutte's already set out what the Alliance is lacking. In a speech earlier this month he said Nato needed a 400% increase in its air and missile defences: thousands more armoured vehicles and tanks, and millions more artillery shells. Most member states, including the UK, do not yet meet their Nato capability commitments. It's why Sweden plans to double the size of its army and Germany is looking to boost its troop numbers by 60, plans go into granular detail as to how the Alliance will defend its Eastern flank should Russia invade. In a recent speech, the head of the US Army in Europe, General Christopher Donahue, highlighted the need to defend Polish and Lithuanian territory near the Russian enclave of Kaliningrad. He said the Alliance had looked at its existing capabilities and "realised very quickly they are not sufficient".Yet, strangely, specific discussions about Russia and the war in Ukraine will be muted. It's the one big issue that now divides Europe and America. Kurt Volker says, under Trump, the US "does not see Ukrainian security as essential to European security but our European allies do".Trump has already shattered Nato's united front by talking to Putin and withholding military support to Arnold says contentious issues have been stripped from the summit. Not least to avoid a schism with Trump. Leaders were supposed to discuss a new Russia strategy, but it's not on the President Volodymyr Zelensky has been invited to the summit dinner, but he won't be taking part in the main discussions of the North Atlantic will be hoping that his first summit as secretary general will be short and sweet. But with Trump at odds with most of his allies on Russia, the greatest threat facing the Alliance, there's no guarantee it'll go according to plan.