erkki liikanen : the euro at 10 – the next global currency? speech by mr erkki liikanen, governor of the bank of finland, at the joint conference “ the euro at ten : the next global currency? ”, sponsored by the peterson institute for international economics and bruegel, peterson institute for international economics, washington dc, 10 october 2008. * * * when europe ’ s economic and monetary union ( emu ) was launched nearly a decade ago, the euro was seen as having the potential to challenge the role of the dollar as a global currency. views differed a lot, however, and the debate was lively. some argued that the euro could become a major counterpart to the us dollar within relatively short period of time. others argued that it would take a long time. and some even predicted that the emu would not be sustainable. those who highlighted the potential role of the euro stressed the relative and increasing size of the euro area economy, its growth and low inflation. moreover, there was a strong conviction that the creation of the emu would eventually enhance the deepening and integration of euro area financial markets. all this was seen necessary for the euro to become an international currency in its own right. in addition, many pointed to opportunities and needs for portfolio diversification. the launch of the euro took place in the wake of rapidly surging globalization. this beyond doubt facilitated the euro ’ s role in international foreign exchange and capital markets. over the past decade international trade has continued to grow. perhaps more importantly, international capital flows have grown dramatically and the foreign exchange market turnover has continued to increase at an unpredictable pace. all this has coincided with large and persistent global imbalances, soaring foreign exchange reserves and rapidly growing sovereign wealth funds. now ten years later, it is time to sit down and try to make an initial assessment of the role of the euro as an international currency. for those who argued that the euro would become quickly a major international currency, developments have fallen somewhat short of expectations. likewise those who expressed skepticism towards the historic decision to launch the euro were clearly misguided. the answer lies somewhere in between. in my view, the euro is a success and, on balance, the euro has firmly established itself as an international currency with a wide acceptance outside the euro area. it gradually emerged as the second most important currency after the us dollar. as the number of countries that share the euro is set to increase one might expect that euro ’ s role

. global measures of uncertainty have fallen from their record highs earlier in the year, but remain at elevated levels. and the recovery is incomplete because there is still much ground to recover. for the euro area, a similar assessment applies. the incoming data show a strong recovery, but also one that is uneven, uncertain and incomplete. our latest macroeconomic projections signal that output will rebound in the third and fourth quarters by 8. 4 % and 3. 1 %, respectively, broadly in line with the expected pace set out in the june projections. growth is projected to average - 8 % in 2020, 5 % in 2021 and 3. 2 % in 2022. but only towards the end of the projection horizon is output projected to return to its pre - pandemic level. both hard and soft indicators have rebounded sharply since april, but in most cases they remain notably below pre - pandemic levels. for example, by june industrial production had recovered around two - thirds of the trough, but still remained approximately 11 % down on february. highfrequency indicators such as mobility data, electricity consumption and credit card transactions displayed progressive improvement in july and august, although these data are highly seasonal which prevents us from drawing strong conclusions. the unevenness of the recovery is highlighted by the divergence between services and industry, in contrast to the crisis a decade ago when activity in these sectors moved in tandem. the 1 / 4 bis central bankers'speeches services pmi declined to 50. 5 in august from 54. 7 in july, while the manufacturing pmi continued to improve marginally. retail trade has returned to pre - pandemic levels but expenditure on several consumer services remains exceptionally low. with consumer and business services accounting for 55 % of the euro area economy, it is clear that a full recovery requires a more significant rebound in these sectors. indeed, around five million fewer people were employed in the second quarter of this year relative to the end of 2019, and if the current strength of the rebound does not continue – or fails to spread across all sectors – it is unlikely that they will all be re - employed in the near term. while the various job - retention schemes introduced by governments have so far been effective in cushioning the fall in income and preventing a more precipitous decline in employment, and the numbers of people enrolled in those schemes are falling as activity picks up, keeping job support schemes in place is critical to avoid a sharp increase in unemployment later in the year.