The European Commission said on Tuesday it would seek to boost the international role of the euro and build European financial infrastructure so that the EU becomes more independent of outside financial centres and the dominance of the U.S. dollar.
The initiative, which is an announcement of a long-term strategic direction rather than a action plan, follows Britain's EU departure, which took Europe's biggest financial hub -- the City of London -- outside the EU's jurisdiction.
"With the withdrawal of the UK from the EU, there is a strong need and opportunity to develop domestic market infrastructures," the Commission said in a paper addressed to EU governments, the EU parliament and the European Central Bank.
The EU is also still smarting from the fallout in 2018 when U.S. President Donald Trump withdrew from the nuclear deal with Iran and reimposed sanctions, leaving the Europeans unable to continue to trade with Iran under the terms of the accord.
EU-based securities depositories Clearstream and Euroclear were affected by the Iran decision and the EU-based SWIFT bank payment and messaging system had to disconnect Iranian banks.
"The EU should develop measures to shield EU operators in the event a third country compels EU-based financial-market infrastructures to comply with its unilaterally adopted sanctions, or through other means that interfere with legitimate EU operations," the Commission said.
But the EU executive arm offered no immediate solutions, saying only it would first assess EU vulnerabilities and then "develop tools to counteract" them.
The Commission said that to strengthen the effectiveness of the EU's own sanctions regime, it would review how they were circumvented, including via cryptocurrencies and stablecoins, and make proposals in 2022.
The Commission will also reach out to market participants to encourage trade in euro-denominated debt securities, commodities and other instruments, especially that the EU is to issue 750 billion euros ($910.65 billion) of joint debt to fund its post-pandemic recovery.
EU market players should cut their reliance on clearing houses, called central counterparties, outside the EU and use more the ones based in the 27-nation bloc, it said.
The EU also wants to develop euro-denominated energy indices, increase the attractiveness of euro bonds through a reform of its "MiFID" securities and benchmark rules. The ECB is also looking at the possibility of launching a digital euro.
The Commission, ECB and the bloc's banking and markets watchdogs will work with industry to assess "possible technical issues" related to shifting derivatives positions from London to the EU, the Commission paper said.
This means the EU is unlikely to grant UK financial services access to the EU beyond the temporary access it has granted for derivatives clearers to mid-2022.
When looking at company takeovers, the Commission would also check whether they make an EU company "more prone" to complying with sanctions from third countries, the paper said. There is also a need to cut the bloc's "excessive reliance" on foreign investment banks and funding in foreign currencies, it said.
($1 = 0.8236 euros)