France, Germany challenge Trump’s America on Iran and the reign of the dollar

It’s not the first time they kiss politically passionately. From left to right Angela Merkel, German Federal Chancellor and Emmanuel Macron President of France. Copyright: European Union. Event: European Council – June 2018 (Day 2)

Last week, the French President Emmanuel Macron and the German Chancellor Angela Merkel challenged the US President Trump by deciding to create a real European army. This week, the two European leaders said they are seriously working on the project to build a financial/trade-clearing mechanism, meant to override the American sanctions against Iran.

In both cases, the Franco-German axis is sincerely opposing the US negative stance towards Europe. As a matter of fact, these two new European initiatives are not just a superficial show off to be seen on eight o’clock news bulletins. It’s a lot more than that.

Trump’s aggression

The Franco-German reaction comes after systematic aggression from Trump’s White House against the strategic interests of Europe. For almost two years now, Trump questions the future of North Atlantic Treaty Organization and disturbs the Middle East, to mention only what is directly related to Europe’s interests.

Trump has called NATO an obsolete organization thus questioning the fate of this strategic pillar of Europe’s security. In the Middle East, Trump has done what he could to obstruct, even openly contest, Europe’s interests in Iran.

The Middle East question

The US President has also eradicated the joint Western strategy in Palestine. He has one hundred per cent endorsed the extremely aggressive positions of the Israeli Prime Minister Benjamin Netanyahu against the Palestinians. Trump moved the US Embassy from Tel Aviv to Jerusalem, infuriating Europe and the rest of the world. He has practically stamped out any American concerns about the Palestinians, forsaking America’s role there as the impartial mediator.

Coming back to the latest developments in Europe, France and Germany also agreed to create a special fund to support the Eurozone countries when in need. This ‘Eurozone Budget‘ would block the intrusion of the International Monetary Fund, and, through it, of Washington, in the European financial affairs.

It won’t be a financial vehicle to bail out euro area governments in distress. It will rather support the weak Eurozone economies to invest more and increase competitiveness. It’s too early yet to assess the role of this new European financial tool. There is not even agreement on the total amount of its resources. Reportedly, Berlin discusses some tens of billions of euros, while France talks about hundreds.

Business with Iran

Despite their rather quantitative not qualitative differences about what is best for Eurozone, the two European Union powers are quite adamant about confronting Trump’s America. Regarding the European plan to override the US sanctions against Iran, things are much more serious than they seem. Europe plans a tool to outshine the dollar and neutralize the US sanctions against Iran. On top of overriding the US sanctions, the target is to use the euro in pricing and clearing the supplies of Iranian oil sold to Eurozone countries.

To be reminded, the US had obliterated Iraq and Libya, when Saddam Hussein and Muammar Gaddafi started selling their precious crude oil in euros, not dollars. Exactly the same is now happening with Venezuela and her President Nicolas Maduro.

It’s always oil

In detail, the European plans for Iran are centered on the so called Special Purpose Vehicle (SPV). Through it, the oil rich country will sell its crude to the Europeans priced in euros, without the intermediation of a financial entity, like a bank, related even remotely to America. The same tool will be used to clear the transactions for the European exports to that country, again without dollar pricing or the involvement of a bank with exposure to US.

To be noted, the very economic and financial equilibrium, even the military/political might of the United States is for decades now based on the reign of the dollar. The US covers her huge double deficits just by being able to print dollars without risking hyper-inflation.

Why? Because the dollar is the prime foreign currency to be held as reserve, by every country of the world. More so, because most of those freely printed dollars and dollar denominated securities are spread all over the world through all and every international market.

Contesting the dollar’s reign

The US currency constitutes the chief means to settle almost all transactions related to international trade flows. In the oil markets this practice is imperative. In this way, the US avoids hyperinflation, despite printing all the time huge amounts of dollars. So, for very existential reasons, Washington cannot tolerate any transition in the oil market not being settled in dollars. Saudi Arabia is the best ally of America in this game. Otherwise, the US economy will collapse, unable to finance its huge deficits in foreign trade or cover the appalling gaps in the government/military budgets.

Whoever threatens the absolute global domination of the dollar, threatens the well being and the might of US, in every respect, economic, financial, political and military. Understandably, the European plans do not have such radical wide-ranging targets. The EU just struggles to protect its interests with Iran. The aim is to avoid the implication of any economic or financial entity with exposure to the United States, and thus be liable to penal prosecution for breaking the American law imposing sanctions on Iran.

A true European army

On top of that, though, the Franco-German agreement to create a real European army will deprive the US from lucrative armaments contracts in all European Union member states. Expectantly, the real European armed forces will be equipped with European defense systems, not American.

Apart the potential economic American losses in this affair, there is a paramount political aspect in the arms provision. The US may also lose her leverage on many European countries, after they change their source of armaments purchases.

US attacked?

In conclusion, it seems that Paris and Berlin have definitely decided to be quite serious in confronting Trump’s aggressiveness. It’s not a small thing to repel the dollar and immunize the Brussels-Tehran exchanges from Washington’s sanctions.

Add to that the threat to block the US armaments sales to Europe and Trump has a lot to ponder before continuing targeting Europe. It will be interesting though to watch what the American reaction will be. In relation to the reign of the dollar, the internal fight within Saudi Arabia’s ruling elite as depicted in the aftermath of the Khashoggi murder, may not be irrelevant to the American problems. But this is another story, as Rudyard Kipling would have said.