The Role of the Euro in the Eastern Partnership Countries

Radostin Neykov and Caroline Robert

No 138, European Economy - Discussion Papers from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: This paper explores the role of the euro in a number of Eastern neighbours to the EU that are part of the Eastern Partnership (EaP) initiative: Armenia, Azerbaijan, Belarus, Georgia, the Republic of Moldova and Ukraine. Based on a survey conducted by the European Commission at the end of 2019 on the use of the euro and other currencies in these countries, as well as desk research, it looks into four dimensions: cross border trade transactions, foreign exchange reserves, external public debt and the commercial bank sector. It finds that most of the EaP countries are skewed towards using the US dollar. This reflects both historical developments and the efficiency of the US dollar financial market. However, the growing political ties and economic exchanges between these countries and the EU provide a rational basis for a greater role of the euro. Since 2014, the euro is steadily increasing its share in trade invoicing and debt stock in a number of countries. Overall, Moldova stands out by a large margin as it uses the euro in more than half of its total international transactions. At the other end of the spectrum are Georgia and Armenia, where the euro plays a more moderate role in most areas. Based on these findings, the paper highlights some areas where the EU could encourage the use of the euro in the region through enhanced economic diplomacy and policy initiatives that would increase its attractiveness such as development of instruments that create sufficient supply of safe euro assets or target niche segments where the EU could play a leading role (for example social bonds, green bonds).

JEL-codes: E41 E42 E52 E58 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2021-02
New Economics Papers: this item is included in nep-cis, nep-mac and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:euf:dispap:138

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