Europe took center stage this week as Germany advanced to Sunday’s finals in the World Cup and that country’s sassy chancellor, Angela Merkel, asked the CIA “chief of station” to get out of Berlin.
Six months from now, those two stories may be mere footnotes, but other events on the continent pose lasting repercussions to our economy and the financial markets.
While Europe was distracted by soccer, the US Justice Department was exacting a nearly $9 billion fine on France’s largest bank — BNP Paribas. That amounts to one-tenth of the bank’s market value.
BNP Paribas pleaded guilty to a federal charge of flouting US sanctions on countries we blacklisted. Justice is determined to impose a huge penalty on the French, so much so that President François Hollande cornered President Obama at a Paris restaurant last month to seek relief.
He didn’t get it and the French are mad. The Germans, whose Deutsche Bank is next in Justice’s cross hairs, aren’t so happy either.
This isn’t to say that BNP wasn’t morally challenged in its dealings with rogue nations as it laundered dollars through bank transfers in New York.
On the heels of what the French believe was a draconian fine on BNP, France’s business and political leaders are lashing out against the power of the dollar when it comes to its role as the reserve currency.
Indeed, last week, France’s finance minister, Michel Sapin, cited the BNP fine as a reason for Europe to “realize the necessity of using a variety of currencies.” Drilling home the point, Sapin wondered why France should sell its Airbus jets in dollars instead of euros.
Of course, a lot of this is just French posturing — huffing and puffing — as the French do best.
The greenback is still used on one side of 85 percent of the world’s business dealings.
Still, Russia’s President Vladimir Putin seems to be doing his best to deflate the dollar’s dominance. In May, he cut a $400 billion deal to sell Russia’s natural gas to China. In many cases, local currencies will be used.
Yes, it may take years to cut into the dollar’s hegemony on the global monetary stage, but once the tide turns, it will be hard to reverse. In the end, tying the dollar to a failed agenda of sanctions may be one of Obama’s biggest foreign-policy blunders.