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Official notices by the Office of the United States Trade Representative rarely provide deep insight into Europe’s financial predicament – with one notable exception.
On 11 March, 2026, the USTR said it would investigate multiple US trading partners, including the EU, for alleged “structural excess capacity and production in manufacturing sectors”.
As has become typical during Donald Trump’s presidency, the allegations were largely spurious – even absurd. Europe is making too much stuff? And why, for instance, is Singapore being investigated for “excess production”, given that it runs a deficit with the US?
But by far the strangest – and most interesting – aspect of the so-called Section 301 probes was not the complaint against the EU or Singapore, but Norway.
The Nordic country, which is not an EU member but participates in the bloc’s single market, “engages in policies and practices that have the effect of undervaluing its domestic currency”, Washington said. These include using “state-owned or -controlled enterprises to recycle oil revenues into non-domestic currencies, like the US dollar, rather than its domestic currency”.
The claim has a grain of truth. Norway’s $2 trillion sovereign wealth fund, which has become the largest in the world through sales of the country’s bountiful oil reserves, did in fact boost its holdings of US Treasuries from $181 billion to $199 billion in the second half of last year.
Nevertheless, as a share of the fund’s total investments, the 0.2 percentage point increase is essentially a rounding error. Moreover, a more plausible explanation for Oslo’s purchases of the world’s safest assets than currency manipulation is that it simply wants to safeguard Norway’s wealth.
“The Norway complaint is very attenuated,” said a former US trade official. “A state-owned company investing in dollar assets is a far cry from a country intentionally devaluing its currency.”
Dollar duality
Putting aside its merits, however, the complaint’s existence is also worth analysing.
Why, after all, is Washington formally protesting about a country buying too many dollars? Isn’t the demand for the greenback, and US debt in particular, the cornerstone of the global financial system, whereby the dollars used to finance America’s yawning current account deficit are recycled through foreign purchases of US assets, including Treasuries?
Conversely, why are EU policymakers currently seeking to boost demand for euro-denominated assets, and, more generally, aiming to get the single currency to play a greater role in international finance? If having a global currency is so great, why is the US moaning about it?
In fact, the US complaint echoes increasingly frequent admissions of the downsides of dollar dominance by many senior American officials – although, notably, not Trump himself.
On the one hand, demand for dollar-denominated debt affords the American government, businesses, and consumers the “exorbitant privilege” of borrowing at significantly cheaper rates. But on the other, this demand strengthens the greenback’s value, damaging the competitiveness of US exports and, thus, exacerbating America’s industrial decline.
The dollar’s status as the world’s reserve currency “is a massive subsidy to American consumers, but a massive tax on American producers”, as US Vice-President JD Vance has put it.
Steve Miran, a former senior Trump advisor and current Federal Reserve Board member, is even more forthright. “The reserve function of the dollar has… decimated our manufacturing sector and many working-class families and their communities,” he said in a speech last year.
America’s exorbitant privilege, in other words, also has an exorbitant cost.
Euro-phoria
To be sure, EU policymakers are largely aware of this issue. Or, rather, they should be.
“I think the question is not whether the euro will become the new hegemonic global reserve currency,” Shahin Vallée, head of the geoeconomics programme at the German Council on Foreign Relations, told the European Parliament’s economic and monetary affairs committee this week.
“What we’re talking about is a multipolar world emerging, where the euro should be able to stand as one of the global reserve currencies. And I think in that case, the trade-off between cost and benefit is a lot easier.”
EU officials, however, sometimes talk as if they are indeed seeking to dethrone the dollar. European Central Bank President Christine Lagarde – who coined the now-ubiquitous “global euro” locution – has repeatedly suggested that Trump-induced US financial volatility means the euro has a “unique opportunity” to become the “dominant global currency”.
Arguably, this is as unachievable as it is undesirable.
The dollar currently accounts for 57% of global foreign exchange reserves – down from its peak of 72% in 2001, but still close to three times the euro’s share of 20%. Europe’s fragmented capital markets and reluctance to issue more common debt mean its share – which is roughly the same as it was two decades ago – is unlikely to increase anytime soon.
What is likely more attainable, however, is a reduction of the EU’s financial dependence on Washington and, in particular, strengthening the bloc’s resilience to any potential US sanctions.
This is especially true for payment infrastructure, for which EU banks are overwhelmingly reliant on US firms. Visa and Mastercard alone account for two-thirds of card payments in the eurozone.
Indeed, EU policymakers sometimes suggest that “de-risking” from the US is ultimately what having a “global euro” is all about.
The fact that Europe’s “payments landscape is highly dominated by non-European providers… poses real threats to our resilience and economic security”, Valdis Dombrovskis, EU Economy Commissioner said earlier this year.
Norway José
Unfortunately, the EU’s proffered ‘solution’ to this problem – a ‘digital euro’ that would in theory operate completely independently of US payment systems – is no panacea.
As Vallée noted, the fact that the digital wallets are likely to be limited to €3,000 means that the much-vaunted scheme will likely be “too modest” to constitute the “fully sovereign and fully public payment infrastructure [that]… is critical to the international role of the euro”.
There is also a deeper problem, one that the EU shares with Norway.
As Oslo’s finance minister, Jens Stoltenberg, noted in an interview this week with the Financial Times, the size and depth of US capital markets mean that Norway essentially has no choice but to invest much of its oil proceeds in America. (“There is no way to hide [$2tn]”, he said.)
Similarly, the sheer magnitude of the American consumer market and the necessity of retaining access to the dollar mean EU businesses are likely to comply with real or threatened US sanctions even if Europe were to have a genuinely autonomous payment system.
“It’s good to have a backup option,” said Varg Folkman, an analyst at the European Policy Centre. “But I don’t think the EU is going to de-risk from the US financially anytime soon.”
Still, Brussels should resist drawing the same lessons as Oslo, whose military and financial dependence on Washington is so deep that it appears to have given up attempting to de-risk at all.
“We have no plans to reduce our exposure in the US,” Stoltenberg, who previously served as NATO chief, told the FT.
The EU, however, is unlikely to stop trying.
Economy news roundup
Why Orbán’s defeat won’t (yet) unblock EU’s €90 billion Ukraine loan. Domestic Hungarian politics, a possible Slovak veto, and EU bureaucracy mean that unlocking the cash scheme could take weeks even if incoming Hungarian prime minister Péter Magyar soon lifts Budapest’s veto. However, EU officials remain optimistic that the first disbursement of the loan will be completed within the second quarter of this year. Kyiv is set to face a fiscal crunch in mid-July. Read more.
Brussels urges G7 to frontload €45 billion Ukraine loan. EU Economy Commissioner Valdis Dombrovskis urged ministers from Japan, the UK, and the US to accelerate payouts from the so-called Extraordinary Revenue Acceleration (ERA) loan during a visit to Washington this week. The EU has already fully paid out its €18.1 billion share of the loan, which was agreed by the G7 group of Western countries in 2024 and is backed by immobilised Russian central bank assets held by Euroclear, a Brussels-based clearing house. Roughly €7 billion of the scheme has not been delivered, with Tokyo, London, and Washington all having yet to disburse their shares. Read more.
Brussels pitches state subsidy splurge. The European Commission is considering providing sweeping government subsidies to European businesses, as Brussels races to shield the EU’s economy from the surge in energy prices sparked by the Iran war. Draft Commission proposals, seen by Euractiv, suggest the EU executive will allow member states to significantly increase subsidies for heavy industry as well as the agricultural, fisheries, inland shipping, and road transport sectors. “This goes much further than the current state aid rules,” said Philipp Jäger, a senior fellow at the Jacques Delors Centre. Read more.
IMF slashes eurozone growth forecast amid Iran war fallout. The Fund said it expects the EU’s 21-country single currency area to expand by 1.1% in 2026, down from the 1.3% expansion previously forecast in January. The EU’s four largest economies – Germany, France, Italy, and Spain – all had their growth outlooks downgraded, as the surge in oil and gas prices sparked by the US-Israeli attack on Iran in February offset planned increases in government spending, including on defence. Pierre-Olivier Gourinchas, IMF chief economist, told reporters that the forecasts assume that the Iran war will prove “short-lived”. A more “adverse scenario”, in which supply chain disruptions extend into next year, could see global growth slow to around 2% in 2026 and 2027, while inflation could spike to more than 6%, he added. Read more.
Richer EU states gain upper hand in Competitiveness Fund battle. A draft proposal prepared by the Cypriot EU presidency places a “commitment to excellence” at the centre of the European Competitiveness Fund: €400 billion cash scheme that forms the centrepiece of the EU’s next long-term budget. The move is a major win for Germany, France, and other rich member states, who have long pushed for ECF funding to be awarded primarily on merit-based criteria. Poorer states, however, have argued that the allocation should also reflect geographical balance, and that strict ‘excellence’ criteria would disproportionately benefit wealthier capitals. Read more.
Source:
www.euractiv.com