"Trump administration will not pursue a second Plaza Accord… Dollar weakness is the result of lost confidence in the U.S. economy" [Sang-eun Lee's Washington Now]

Interview with Nicolas Véron, Bruegel senior fellow

"I do not expect the Donald Trump administration to pursue ideas like a Mar-a-Lago agreement."

Nicolas Véron, co-founder of Bruegel, a leading Brussels think tank, said this in a recent video interview with the Korea Economic Daily, adding that "it is not appropriate to contemplate an international monetary system like the Plaza Accord at this time."

Steven Myron, who served as chair of the White House Council of Economic Advisers (CEA) early in the Trump administration and was appointed to the U.S. Federal Reserve (Fed) Board of Governors last September, presented in the 'Myron report' released before his appointment the idea of a 'Mar-a-Lago agreement' to weaken the dollar with allies to help address U.S. government debt.

An expert on international finance and banking systems, Véron said in the interview that the idea "is not a major agenda item (for the Trump administration) at present." He cited the fact that the dollar has already been weakening since the Trump administration took office even without such measures. A co-founder of Bruegel in 2002, Véron has also served as a senior fellow at the Peterson Institute for International Economics (PIIE) in Washington, D.C. since 2009. He is an EU integrationist who led the 'banking union' initiative in response to the European sovereign debt crisis in the early 2010s.

▶Do you think the Mar-a-Lago agreement idea is feasible?

"First, Myron himself has stated that this report does not represent the policies of the Trump administration. Also, after the report was released the dollar has already shown considerable weakness. He will not propose further strategies to weaken the dollar."

▶Isn't there precedent in the past like the Plaza Accord?

"Designing an international monetary system such as the Plaza Accord (1985) to push the dollar lower or the Louvre Accord (1987) to prevent excessive depreciation is not suitable for the current situation. The environment is completely different from the 1980s, so the likelihood that multiple countries would have the will to cooperate on the same terms seems very low. I have not seen signs or announcements that the Trump administration is pursuing such an idea."

▶Does the Trump administration not want a weaker dollar?

"The dollar is clearly weak at present. While this movement aligns with some of the Trump administration's objectives, the actual cause is not the administration's strategy. On the contrary."

▶What is the cause of the dollar weakness?

"Because global investors have less confidence in the U.S. economy than before. Investors have reduced dollar assets or hedged against exchange rate changes, producing this phenomenon. It is a signal that confidence in the United States has decreased."

▶Tariff increases were expected to be a factor for dollar strength.

"It is hard to predict market movements, but I think the fact that tariff increases could be accompanied by dollar weakness should be a concern for U.S. policymakers."

▶A year ago the dollar and the euro were almost 1 to 1, but now the euro has strengthened. Do you see the euro strengthening its position as a reserve currency?

"Yes. That phenomenon is already occurring. While the concept of a reserve currency itself is debatable, it can be seen as a currency that serves as a 'reference point' for global investors. Even if the structure of the eurozone does not change, a decline in confidence in the U.S. dollar would naturally strengthen the euro's relative position."

▶Aren't there other currencies besides the euro?

"In practice, the only major convertible currency globally besides the dollar is the euro. The Japanese yen or the British pound are smaller in scale, and the Chinese yuan, despite China's economic power, is limited in functioning as an international currency because investors cannot convert it freely at any time to meet demand. The euro holds a unique position as a dollar substitute. That is a reason why the euro has been stronger against the dollar."

▶Nationalism and populist trends are appearing across Europe and the world. Might this hinder the European Union's drive for integration?

"Populist movements differ by country and are strongly influenced by each country's history. It's hard to lump them together. For example, the Brothers of Italy party led by Prime Minister Giorgia Meloni has not conflicted with the EU's integration or the EU's stance on supporting Ukraine after coming to power. Many populist parties have no actual governing experience. Even the 40-year-old Rassemblement National in France has never governed. The Italy case shows that they can be less destructive in power than expected."

▶What are the obstacles to further European integration?

"The European integration process is never smooth. It is the case now and will be in the future. The war in Ukraine is the EU's biggest short-term challenge. So far the EU has responded very cohesively. A year ago many predicted that after President Trump took office the U.S. would pull back from Ukraine and the EU would follow. The U.S. did reduce support as expected, but the EU expanded its support. That will continue."

▶Do you think Ukraine can become an EU member?

"There is a fairly high possibility. It would be difficult during the war, but once the war ends Ukraine would seek EU membership and is likely to be approved."

▶Do you mean joining only the EU and not NATO?

"Yes. Countries like Austria and Ireland are in that situation. Sweden and Finland, both EU members, only recently joined NATO."

▶Will the eurozone expand further?

"Croatia (2023) and Bulgaria (this past July) recently joined the eurozone. However, on current EU issues such as the war in Ukraine, energy policy, and trade shocks, there is not a large difference between eurozone and non-eurozone countries. If a financial crisis recurs, questions about the scope of the eurozone will be raised."

▶Can the EU, Korea, and Japan cooperate to respond to changes in the U.S.?

"Yes. On many global issues — climate change response, tax issues such as a global minimum tax, financial stability — the interests of the EU, Korea, and Japan are closely aligned. There is ample basis for cooperation including the UK, Canada, and Australia. Expanding cooperation, such as jointly joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), is very reasonable."

Washington = correspondent Sang-eun Lee selee@hankyung.com