The Wall Street Journal reports Europe Plans ‘Special Vehicle’ to Maintain Companies’ Ties to Iran, Avoid U.S. Sanctions.
The European Union said late Monday that it would establish a special payment channel to allow European and other companies to legally continue financial transactions with Iran while avoiding exposure to U.S. sanctions.
> The move is a direct rebuke of President Trump’s policy on Iran and his decision to withdraw from the nuclear deal in May, and sets the stage for a confrontation between the U.S. and Europe in the days ahead at the U.N. General Assembly, where Iran is among the prominent themes.
> EU foreign-policy chief Federica Mogherini and Iran’s Foreign Minister Javad Zarif made the announcement of a “special purpose vehicle” jointly, in English and Farsi, after a meeting at the U.N. of the parties still committed to the deal—Iran, EU, U.K., France, Germany, Russia and China.
> The mechanism—the details of which would be set up in future meetings with technical experts—would facilitate payments related to Iran’s oil trade, exports and imports, and “reassure economic operators pursuing legitimate business with Iran,” the statement said.
> Ms. Mogherini said Iran has remained fully committed to its obligations under the nuclear deal, as certified by a dozen reports from U.N.’s nuclear watchdog, the International Atomic Energy Agency.
Europe has Excuse to Challenge the Dollar
Bloomberg writer Leonid Bershidsky says Europe Finally Has an Excuse to Challenge the Dollar
> With more and more European companies fleeing Iran following the re-imposition of U.S. sanctions, it may be tempting for Americans to write off Europe’s efforts to save the Iran nuclear deal. It would be wiser to resist the temptation. A new plan by Germany, France, Britain, China and Russia to create special financial infrastructure to work with Iran could be a credible challenge to the U.S. dollar’s long global dominance.
> Federica Mogherini, the European Union’s top foreign-policy official, said in New York on Monday that the plan to create a “special purpose vehicle” for trade with Iran “will mean that EU member states will set up a legal entity to facilitate legitimate financial transactions with Iran, and this will allow European companies to continue trade with Iran.” The technical details are still to be worked out, but her wording provides some useful hints on how the scheme will work.
> Mogherini indicated that Germany, France and the U.K. would set up a multinational state-backed financial intermediary that would deal with companies interested in Iran transactions and with Iranian counter-parties. Such transactions, presumably in euros and pounds sterling, would not be transparent to American authorities. European companies dealing with the state-owned intermediary technically might not even be in violation of the U.S. sanctions as currently written. The system would be likely be open to Russia and China as well.
Europe Unveils “Special Purpose Vehicle” to Bypass SWIFT
ZeroHedge comments Europe Unveils “Special Purpose Vehicle” To Bypass SWIFT, Jeopardizing Dollar’s Reserve Status
> According to Mogherini, the plan to create the SPV “will mean that EU member states will set up a legal entity to facilitate legitimate financial transactions with Iran, and this will allow European companies to continue trade with Iran” despite Trump’s opposition.
> And, in a potentially massive development, the system would be likely be open to Russia and China as well as it would enable the world’s economies to trade with each other, fully independent of SWIFT.
> Europe would thus provide an infrastructure for legal, secure sanctions-busting — and a guarantee that the transactions would not be reported to American regulators.
> More importantly, it strikes at the heart of the current economic and financial system which is held together by the dollar. By providing an alternative, the global resistance sets the stage for what potentially could be the ascendancy of other global reserve currencies, and/or a world of bilateral trade agreements which bypass both the US Dollar and Swift entirely, eliminating Washington’s “veto powers” on global trade.
> Given U.S. law enforcement’s wide reach, there would still be a risk involved, and European governments may not be able to protect the companies from it. Some firms will be tempted to try the new infrastructure, however, and the public isn’t likely to find out if they do. In any case, in response to Trump’s aggressive foreign policies and “weaponization” of the dollar, it is worthwhile for Europe, Russia and China to experiment with dollar-free business.
End of Dollar Dominance
Bershidsky concluded: “No currency’s international dominance has lasted forever, and there’s no reason for the U.S. dollar to be the exception to this rule.
Trump’s confidence in his ability to weaponize the dollar against adversaries and stubborn allies alike could eventually backfire for the U.S. as efforts to push the dollar off its pedestal grow ever more serious.”
I strongly disagree.
Attack on SWIFT and Sanctions Not the Dollar
No currency’s dominance has lasted forever. The dollar will be no exception, eventually. But this is not a direct attack on the dollar, per se.
Neither China nor Germany want to have the world’s reserve currency because it would disrupt their mercantilist export models.
Moreover, China is not remotely close to meeting the necessary conditions for the yuan to have any major role in international trade.
Backfired Already
Bershidsky is nearly correct about one aspect: “Trump’s move could eventually backfire.”
This is more accurate assessment: Trump’s ill-advised sanctions have already backfired.
That the EU would go ahead with SWIFT-avoidance is proof. This is an attack on a US payment system and the ability of the US to single-handedly set sanction policy for the entire world.
It is absurd for one person, in this case Trump, to decide sanction policy for the entire world. That ability will soon end.
I applaud this effort by the EU. A global means to avoid idiotic US sanctions cannot happen soon enough.
Transition
- The SWIFT replacement system will be Euro-based. That part is certain. There would be no faith in a Russian or Chinese system or their currencies.
- Initially, the large European players will avoid it.
- Smaller European players that do little business with the US, as well as firms in India and Turkey, will step up right away. They have little fear of US sanctions.
- Eventually, the larger European players will use the system. “Eventually” will come sooner rather than later. Likely in steps unrelated to Iran simply to let the big players test the system. At some point, a big player will be willing to tell the US to go to hell.
- This progression is a good thing.
Related Ideas
The idea that the yuan will soon replace the dollar as the world’s reserve currency is absurd for currency reasons, political reasons, and economic reasons.
For discussion and numerous reasons, please see Gold-Backed Petro-Yuan Silliness: Reserve Currency Curse?
Actually, the PetroYuan is a Huge US Success Story, Not a Chinese One
Finally, please consider Petroyuan’s Crash at Birth
The above link also lists reasons why the Yuan is nowhere close to being capable of displacing the dollar. SWIFT avoidance maneuvers may eventually facilitate moves away from the dollar, that is not the immediate threat, nor what the EU’s move is really about.
Regardless, I repeat:
I applaud this effort by the EU. A global means to avoid idiotic US sanctions cannot happen soon enough.
Mike “Mish” Shedlock
It would be nice if we got away from the dollar-oil trade in a civilized way. If nothing else it would make the middle east Europe’s problem again (the way it should be). But I guess if it takes a bull-in-the-china-shop solution, so be it. What’s the quote on gold today?
If the EU didn’t set up a pathway for Europeans to trade with Iran, China and Russia would have. And then the Nannycrats wouldn’t have nearly as much control over the process. And control is these leeches’ obsession above all else.
Iran has oil. The rest of the world needs oil. Iranian oil will find it’s way to that rest of the world which needs it. The rest are only technicalities and formalities.
“To be serious for a moment — the EU is (as almost everyone agrees) run by incompetents. They are not going to be able to set up an alternative international payments system.”
STOP
That is an ad hominem attack. It is similar to dismissing everything Krugman says just because two-thirds of it is garbage.
No one that I am aware of is always wrong.
Mish
Expect the unexpected,
The Russians/China et al, could simply buy Iranian oil for x/80 $ and sell it for 81 $/ euros + to y and wupti…
What would humpdi Trumpi do then…?
The Russia santions bashing will continue whatever they do,
So hopefully and finally the us $ paper fiat will be challenged with another fake currency / shit coin / Imf dream rights.
Funny that fake money fiat US Fed creates wealth out of nothing/future generations and buys Chinese trinkets/steel ect. below cost and then complains that the chinese are manipulating their paper currency.
Chinese labour costs are so low, that it is impossible for us workers to compete, and nobody talks about the true cost of production that include the huge enviromental cost og cleaning up/health care costs ect.
Does trump really want more pollution in the US, that it already has, ?
What will it cost to clean up after the fake shale oil boom, incl shipping fresh water from ? ect…for farming in the desert ect.
What happens with this new solidarity after Iran attacks the US on the high seas. Will Europe sell Iran warships? A dangerous game is being played here.
We’ve been trying to provoke Iran into a military response. By repeatedly telling the world we’re going to regime-change them (like a few of their neighbors have already experienced) we’re hoping to elicit a response we can use to justify strikes. That’s the dangerous game being played here.
This week’s attack on the military parade is another provocation, probably funded by Saudis. If Iran is smart they’ll take the high road as much as possible, but there must be mounting pressure from some of the population to strike back and stop taking abuse. It’s a tightrope for them.
Of course France and Germany would like to export lots of stuff to Iran and get paid.
Iran needs lots of new Airbus aeroplanes for example.
My prediction is that this will cause Trump to invent other ways to sanction companies doing business with Iran.
Also about China’s and Germany’s Mercantilist economic model I have to state that China is more purely a mercantilistic economic model and Germany has many mercantilistic things but it is more germanic economic model.
Germany’s germanic version of mercantilism:
Create a huge captive marketplace in Euro area.
Win efficiency and quality competition in this area leading to Germany’s exports flowing inside Euro area while other Euro countries become unable to export outside of Euro area because high Euro takes their competitiveness away and those same other Euro countries also lose competitiveness inside Euro area because Germany is more efficient and China can export lots of stuff cheaply to Euro area because Euro is so much higher than Yuan which is tied to mostly dollar
Since the economies of several Euro countries would suffer due to the loss of competitiveness keep consumption party going by funding those countries through ECB buying their debt and ECB having a rule that all Euro area government debts are to be considered 100% secure so Euro area banks also buy that debt. So all Euro countries can buy german manufactured products with debt and the consumption party keeps going.
Even though German exports outside of Euro area are mostly based on high quality and original innovations Germany still gets huge benefits from Euro because Euro is LOWER than German Deutchmark would be.
Demand ECB makes Germany whole for all the debts while at the same time using the debt Germany has enabled EU countries to spend to take other EU countries more in EU control so they are also more in German control since Druncker does what Merkel tells him to do.
Germany has been the ONLY beneficiary from Euro…
I added this transition to the article.
Transition
The SWIFT replacement system will be Euro-based. That part is certain. There would be no faith in a Russian or Chinese system or their currencies.
Initially, the large European players will avoid it.
Smaller European players that do little business with the US, as well as firms in India and Turkey, will step up right away. They have little fear of US sanctions.
Eventually, the larger European players will use the system. “Eventually” will come sooner rather than later. Likely in steps unrelated to Iran simply to let the big players test the system. At some point, a big player will be willing to tell the US to go to hell.
This progression is a good thing.
Mish, it seems like you are letting your animosity for President Trump cloud your judgment.
For small products, there are always leaks in any sanction system — Dubai has profited immensely over the years of European sanctions by taking shipments that later find their way to Iran. But it does not matter if a major exporter uses SWIFT or some other system for payment (physical shipment of gold bars?), when brand new Airbuses line Iran’s runways, everyone is going to know.
So the question is — Is the Iranian market (or some other market)so large that an exporter is prepared to forego the US market in exchange?
Remember if, say, German auto manufacturers decide they are willing to lose the US market in order to sell their gas-guzzling battlewagons to Iran or anyplace else, that will create a window of opportunity for US manufacturing. Sounds like a win for US workers!
Please note — what we are talking about here is non-tariff barriers to trade. I don’t understand why you never address non-tariff barriers, Mish?
You’re right.
Trump just helped the Mullahs implement massive non tariff barriers to trade.
Iranian workers are no doubt rejoicing. Celebrating The Great Orange Haired Satan as we speak!
Situation normal — I am confused!
Is the EU Bad because it is conspiring with incompetent UK politicians to undermine UK citizens’ narrow vote for separation? Or is the EU Good because it is conspiring with Russia and China to undermine President Trump’s efforts to stop Iran becoming a threat to world peace?
But hold on! Hillary Clinton assured me that Russia conspired with candidate Trump to stop her from being crowned Queen. So is Russia for or against Trump? No wonder a poor guy can get so confused.
To be serious for a moment — the EU is (as almost everyone agrees) run by incompetents. They are not going to be able to set up an alternative international payments system. And if they try, the case for the dissolution of NATO becomes overwhelming. Have a nice day, Eurotrash! There are some really good “Learn Russian” courses on-line.
Only in children’s cartoons are someone, or something, either entirely baaaad, or entirely goood. In the real world entities are multifaceted. Even politicians aren’t 100% baaaad. They do, after all, provide nutrition to plants once they finally find their true calling.
Creating more alternatives with which to accomplish something, is always good. Doesn’t matter who creates it. More alternatives are simply always better than fewer, as those who prefer the old ones, can simply continue to use them, while those who prefer the new one, can choose that one. Doesn’t matter if the alternative in question was created by some drug dealing terrorist funder or not. If you don’t like it, don’t make use of it.
May I suggest a second ‘Special Vehicle’? This one would fund EU defense spending when we finally pull out of NATO and stop playing patsy for European defense.
NATO should’ve ended in 1991. The fact that it hasn’t illustrates its usefulness to the MIC. If it hasn’t happened by now, it’s not going to.
It’s also helpful to point out that “defense” has nothing to do with guarding Europe or anywhere else. It’s about enriching various contractors and sowing chaos elsewhere.
SWIFT transactions would be based on what? Euros? Swiss Francs? Gold (haha)?
Another made up fiat?
Like it or not – the US dollar is currently backed by the world’s biggest economy and the world’s most lethal military.
Taylor Swift has more backing than SWIFT…
I agree solidly with you, Mish with regard inability of any other global currencies to challenge the US $ status as dominant global trade currency!
What;s the chances of another system successfully chalening the SWIFT, in the short term?