Multilateralism in global economic system fracturing amid rising protectionism: ECB

ISTANBUL

European Central Bank (ECB) President Christine Lagarde Monday said that multilateral system in the global economy and trade is fracturing, as protectionism and bilateral power plays rise.

Lagarde said that the global multilateral system existed for more than 80 years and the global economy thrived on a foundation of openness and multilateralism – underpinned by US leadership.

“By championing a rules-based international system and anchoring the dollar as the world’s reserve currency, the United States set the stage for trade to flourish and finance to expand,” she said in a press conference in Berlin.

And this order also greatly benefited the EU, “whose founding liberal principles aligned seamlessly with it.”

However, multilateral cooperation is now being replaced by “zero-sum thinking and bilateral power plays,” she said, as openness is giving way to protectionism.

“There is even uncertainty about the cornerstone of the system: the dominant role of the US dollar,” she noted.

Stressing that this fracturing can pose risks to the European economy, Lagarde said that the EU economy is deeply integrated into the global trading system, with exports amounting to around 20% of its value added and supporting 30 million jobs.

“Any change in the international order that leads to lower world trade or fragmentation into economic blocs will be detrimental to our economy,” she said.

Lagarde noted that the euro is now the second global currency, accounting for around 20% of foreign exchange reserves, compared with 58% in the case of the US dollar.

She also stated that they should increase the international role of the euro, which can have positive implications for the euro area.

“In short, it would allow Europe to better control its own destiny – giving us some of what Valéry Giscard d’Estaing called the ‘exorbitant privilege’ 60 years ago,” Lagarde said.

She also gave three suggestions for increasing the role of the euro. First, Europe must have a strong and reliable geopolitical base by upholding an unwavering dedication to free trade and supporting it with security capabilities.

Second, in order to establish Europe as a leading global capital destination, it needs to strengthen its economic base through deeper and more liquid capital markets.

Third, in order to withstand outside influences, Europe needs to strengthen its legal base by upholding the rule of law and by politically unifying.

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