The Role of the Euro in Southern Neighbourhood Countries

Juan José Almagro Herrador, Mihai Macovei and Moritz Bizer

No 163, 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 the Southern neighbourhood of the EU, notably in Algeria, Egypt, Israel, Jordan, Lebanon, Libya, Morocco and Tunisia. Our analysis is based on a survey conducted by the European Commission in 2021 on the use of the euro and other currencies in these countries, as well as other relevant sources and is performed across five main dimensions: cross-border trade transactions, remittances, foreign exchange reserves, external public debt and the commercial banking sector. It finds that the use of the euro in Southern Neighbourhood countries is higher, on average, than in the world and in the EU’s Eastern Neighbours (Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine), although the US dollar remains the foreign currency of reference in the region. The US dollar’s continued strong role reflects historical developments and monetary arrangements, as well as the greater liquidity and dominant role of the US dollar in global financial markets. The region remains a heterogeneous group, with the euro playing a more prominent role than the US dollar in Maghreb countries (i.e. Algeria, Morocco and Tunisia). The extensive use of the euro for trade invoicing across countries seems highly correlated with the depth of economic and trade relations with euro area countries and the EU at large. Around one third of inward remittances are denominated in euro and over one third of the external public debt stock is denominated in euro on average, higher than the global average. The banking sector and foreign reserves remain heavily dollarised across countries. Based on these findings, the paper highlights new areas, such as green finance and NextGenerationEU bond issuance, which together with other policy initiatives could foster a higher use of the euro in the region.

JEL-codes: E41 E42 E52 E58 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2022-06
New Economics Papers: this item is included in nep-ara, nep-cis, nep-eec, nep-ifn, nep-mon and nep-opm
References: Add references at CitEc
Citations:

Downloads: (external link)
https://economy-finance.ec.europa.eu/publications/ ... ourhood-countries_en (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:euf:dispap:163

Access Statistics for this paper

More papers in European Economy - Discussion Papers from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission Contact information at EDIRC.
Bibliographic data for series maintained by ECFIN INFO ().