by Tyler Durden
In a stunning vote of "no confidence" in the U.S. monopoly over
global payment infrastructure, one month ago Germany's foreign
Heiko Maas called for
the creation of a new payments
system independent of the U.S. that would allow Brussels to be
independent in its financial operations from Washington and as a
means of rescuing the nuclear deal between Iran and the west.
Writing in the German daily Handelsblatt, Maas said,
"Europe should not
allow the U.S. to act over our heads and at our expense.
For that reason it's
essential that we strengthen European autonomy by establishing
payment channels that are independent of the U.S., creating a
European Monetary Fund and building up an independent
Swift system," he wrote.
Maas said it was vital
for Europe to stick with
the Iran deal.
"Every day the
agreement continues to exist is better than the highly explosive
crisis that otherwise threatens the Middle East," he said, with
the unspoken message was even clearer:
Europe no longer
wants to be a vassal state to U.S. monopoly over global
payments, and will now aggressively pursue its own "SWIFT"
network that is not subservient to Washington's every whim.
Many discounted the
proposal as being far too aggressive:
after all, a direct
assault on SWIFT, and Washington, would be seen by the rest of
the world as clear mutiny against a U.S.-dominated global
regime, and could potentially spark a crisis of confidence in
the reserve status of the dollar, resulting in unpredictable,
and dire, consequences.
However, despite the
diplomatic consequences, Europe was intent on creating some loophole
to the U.S. ability to weaponize the global currency of account at
Something observed most
recently as part of Trump's latest sanctions on Iran, and as a
result, late on Monday, the European Union
said 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, as the WSJ
"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 over the treatment of
Iran, the payment for Iran oil, and potentially, jeopardizing the
reserve currency status of the dollar itself.
While keeping SWIFT as is, for now, the EU's foreign-policy head
Federica Mogherini side by side
with Iran's Foreign Minister
Javad Zarif announced a,
vehicle" jointly, in English and Farsi, after a meeting at the
U.N. of the parties still committed to the deal:
In fact, everyone
but the U.S.
EU foreign policy chief Federica Mogherini (r),
speaking alongside Iranian Foreign Minister
Mohammad Javad Zarif
According to Mogherini,
the plan to create the
SPV (Simplified Payment
"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
As Bloomberg's Leonid
explains, with Iran sanctions back,
it is clear to the Europeans (as well as the Chinese and Russians)
that any future transactions with Iran must go through entities
insulated from the American financial system.
In a July 2018 report, Axel Hellman of the European
Leadership Network (ELN)
think tank and Esfandyar Batmanghelidj of the Iranian company
Bourse & Bazaar proposed,
"a new banking
architecture" in response to the U.S. sanctions, relying on the
existing system of "gateway banks," such as the Hamburg-based
and the European branches of private Iranian bank.
"A further third
category of gateway banks can be envisioned," they wrote, "which
would comprise of special purpose vehicles established by
European governments, or as part of public-private partnerships
in order to facilitate Iran trade and investment."
The new plan focuses on
this third option.
Mogherini further 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
presumably in Euros and Sterling Pounds, would not be transparent to
dealing with the state-owned intermediary technically might not even
be in violation of the U.S. sanctions as currently written.
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
Europe would thus provide an infrastructure for legal, secure
sanctions-busting - and a guarantee that the transactions would not
be reported to American regulators.
That said, Washington would not be without recourse, although at
that point, all the U.S. could do is sanction the participating
countries' central banks or SWIFT for facilitating the transactions
(if the special purpose vehicle uses SWIFT, rather than ad hoc
That, Hellman and Batmanghelidj wrote, would be self-defeating:
"There are two
possible outcomes if these institutions proceed to work with
Iran despite U.S. secondary sanctions:
authorities fail to take enforcement action given the
massive consequences for the operations and integrity of
the American financial system, serving to 'defang' the
enforcement threats and reduce the risk of European
self-sanctioning on the basis of fear
authorities take such an enforcement action, a step that
would only serve to accelerate European efforts to
create a defensible banking architecture that goes
beyond the Iran issue alone."
Europe, naturally, needs
a "neutral" pretext to implement this SPV, and that would be
Brussels' desire to continue transacting with Iran:
"We are not backing
down [on the Iran nuclear agreement]," said a European diplomat.
He said the speeches of
European leaders at a Security Council meeting Mr. Trump is hosting
on Wednesday on nonproliferation, including Iran, will
reflect the Monday night statement.
Additionally, as basis for the potentially revolutionary
development, the participants of the 2015 nuclear deal, formally
known as the Joint Comprehensive Plan of Action or
determination to protect the freedom of their economic operators
to pursue legitimate business with Iran."
While the details of the
SPV mechanism - which would be set up in future meetings with
technical experts - were still to be determined, with the United
States and the dollar dominating so much of global trade the
statement said the new mechanism would,
related to Iran's exports (including oil) and imports, which
will assist and reassure economic operators pursuing legitimate
business with Iran."
"In practical terms, this 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 to trade with Iran in accordance with European Union
law and could be open to other partners in the world," she told
As a result of Trump's
aggressive new sanctions on Iran, and potentially more sanctions
after November as Trump hinted during his U.N. speech, European
companies have been flocking out of Iran's market and ending
contracts to avoid risking U.S. sanctions.
Meanwhile, Iran - which
has argued that the 2015 deal entitled the Islamic Republic to
benefit from lifting of sanctions and to enter the world market -
has seen its economy stumble, with the currency collapsing almost
daily against the U.S. dollar since the U.S. exited the deal.
Telegraphing that Europe will continue cooperation with Iran despite
U.S. sanctions, 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
She also hailed the 2015
agreement as a major achievement for diplomacy and nonproliferation
and "deeply regrets" what she called the unilateral withdrawal of
the U.S. from the deal.
In any case, creating "a defensible banking architecture" may well
be the end goal for the Europeans, China and Russia, anyway because,
as noted above, Iran is merely a convenient pretext:
after all, the nuclear agreement is one of the few things that unite
the EU, China and Russia against the U.S.
But, as Bershidsky notes,
"working to undermine
the dollar's global dominance isn't ultimately about Iran at
In his recent State
of the European Union speech, European Commission President
Jean-Claude Juncker called for strengthening the Euro's
international role and moving away from traditional dollar
invoicing in foreign trade."
China and Russia have
long sought the same thing, but it's only with Europe, home of the
world's second biggest reserve currency, that they stand a chance of
challenging American dominance.
While it remains to be seen if the "special purpose vehicle" would
entice European companies such as France's Total or Germany's
Daimler to get back into business with Iran remains to be
seen, the optics of the move by the European Union together with
China and Russia to defy the U.S. signaled continued criticism of
Trump administration for its decisions
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 U.S. 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.
But this brings up the bigger point:
international dominance has lasted forever, and there's no
reason for the U.S. dollar to be the exception to this rule.
Meanwhile, as Bershidsky
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